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Why do mortgage rates fall this time of year?

 

For the last couple of years, mortgage rates have fallen during this spring-time period. Optimism over an improving economy which formed in the mid-winter gives way to spring’s reality, that both domestic and global economies are once again hampering economic growth, 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. Mortgage rates have recently dipped after a peak, much as they did during the last two winter-to-spring periods.

Will it continue?

Record-setting mortgage rates

According to the latest data from HSH.com, 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.

Another reason 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.

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