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April 15th, 2013

Why do mortgage rates fall this time of year?



Below is an excerpt from of our latest Market Trends newsletter, a weekly examination of the economic conditions that influenced mortgage rates. Sign up to receive the Market Trends in your inbox Friday evening.

For the last couple of years, market optimism that the economy was finally ready to bust out into self-sustaining growth formed in the mid-winter. In each case, winter’s hopes gave way to spring’s reality, and evident troubles in both domestic and global economies crushed those dreams, driving mortgage rates downward.

While things are different in 2013 than 2012 or 2011, we may simply have a different set of problems which produce the same result. Concerns that the economy was becoming strong enough so as to suggest an early end to the Fed’s QE3 campaign have been pushed aside, as weak consumer and labor market data have again moved to the forefront.

Mortgage rates have recently dipped after a peak, much as they did during the last two winter-to-spring periods.

Will it continue?

Mortgage rates still setting records

SpringSwoon_04.12.13HSH.com’s broad-market mortgage tracker found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) eased by eight basis points (0.08 percent) to 3.69 percent, its third lowest rate of 2013.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) also dropped by eight basis points (0.08 percent) to 2.94 percent for the week.

FHA-backed 30-year fixed-rate mortgages managed a decline of five basis points (0.05 percent), falling to an average rate of 3.30 percent, while the overall average rate for 5/1 Hybrid ARMs dropped by four hundredths of a percentage point, probing new record low territory with an average 2.61 percent for the week.

Other reasons mortgage rates aren’t rising

Demand for mortgage credit, spurred by refinancing and augmented by a housing market finding some footing also plays a role. Supply and demand isn’t dead as a market mechanism, and busy mortgage lenders have had little reason to chop rates to attract new business. A bump in interest rates, though, tends to cool refinance demand, and with only a limited bit of purchase-money business to go around, lenders tend to be tempted to market more aggressively, trimming rates.

As home sales have stopped accelerating and are holding a plateau at the moment, refinance activity has begun to slow as the pool of homeowners who can refinance profitably or successfully is becoming sated. This slowing of demand may be a partial reason for the slippage in mortgage rates of late, with concerns about the economy the other component. Will the fall in rates re-spark refinance activity? Yes, to some degree… but unless we re-test or approach record lows, we’ve already tread this ground, with some of the potential market already processed.

What will mortgage rates do this week?

It’s a fact that mortgage rates tend to fall more slowly than they rise. Poor economic data and some flight-to-quality buys of Treasuries have pressed interest rates lower, at least somewhat. If the drumbeat of weak news continues, we could see a slow slide into summer for mortgage rates, but it seems unlikely that we’d get one of 50 basis points or so such as those that happened in the last couple of years.

Mortgage rates will likely stop declining this week.

2 Responses to “Why do mortgage rates fall this time of year?”

  1. Ryan Says: April 22nd, 2013 at 7:35 am

    I think the QE program is major cause for drop in interest rates and when the program comes to an end we will start seeing the market forces of demand and supply determine the interest rates, with a likelihood that interest rates will go up.

  2. Richard Says: April 26th, 2013 at 5:56 am

    United States have a marginal line on which they base their interest rates. However, this may vary from one lender to another depending on the movement of the treasury rates. With this in mind, some lenders may adjust their rates on a monthly or a yearly basis.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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