Here’s why mortgage rates declined last week
As expected, mortgage rates eased a little last week. After a period of shock and disbelief, it would appear that the market has become accustomed to the fact that the Fed will eventually begin tapering purchases of Mortgage-Backed Securities and Treasury Bonds.
Fed continues to rattle the markets
However, the more concrete deadlines offered by Fed Chairman Bernanke just a few short weeks ago--all predicated on the Fed’s forecasts for growth, employment and inflation being realized--seem to have become a little fuzzier of late. Milestones for unemployment and inflation aside, Mr. Bernanke said as much in testimony before Congress last week.
“We will be waiting to see if the movement in mortgage rates has any material effect on housing,” Bernanke said. “If we think the mortgage rate increases are thwarting the progress we will have to take additional action.”
It will be interesting to see what the Fed considers “material effect on housing,” but we will surely know in the weeks ahead.
Mortgage rates fell last week
- The overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) slipped by 10 basis points (0.10 percent) to 4.60 percent, taking back two-thirds of the previous week’s rise.
- The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) fell by nine basis points (0.09 percent), landing at 3.68 percent for the week ending July 19.
- FHA-backed 30-year fixed-rate mortgages featured a sizable decline of 16 basis points, falling back to 4.22 percent.
- 5/1 Hybrid ARMs completely reversed the rise of twelve one-hundredths of a percentage point (0.12%) for the week ending July 12 to return to an average 3.35 percent.
Why mortgage rates fell last week
Mortgage rates eased a little last week for two reasons:
- Due to the market’s growing comfort with the Fed’s plans
- We have an economic and inflation climate which suggests that the tapering may both start later and last longer than the initial indication from the Fed might have suggested.
Mr. Bernanke made it very clear again last week that a highly accommodative monetary policy would remain in place for a long while, QE or no QE.
Given the present course of the economy, and even if diminished, we seem likely to have these programs in place for a while yet to come.
There is lots of fresh data out this week to chew on. A hunch says that mortgage rates will decline a little bit more, with a decline of perhaps another handful of basis points by the end of this week.