Mortgage rates poised to pop?
Signs may point to a slight decline in interest rates, if that, as summer winds down.
Summer came to an unofficial end on Monday, closing a spring and summer "housing season" that has been mixed at best. You can't blame the present modest levels of home sales on mortgage rates, though, as they've remained virtually unchanged since before Memorial Day.
As has been the pattern, decent-to-solid economic news here in the U.S. suggests that interest rates may be poised to firm somewhat, but economic and political troubles around the globe keep fresh funds pouring into U.S. debt, tethering interest rates at these levels.
In the next few weeks, a quickened pace of activity typically replaces the summer doldrums, and mortgage rates may start the process of moving out of current ranges. For the moment, rates remain almost perfectly balanced between recent low and high points -- the fulcrum point of a seesaw.
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Mortgage rates hit new low
According to the latest weekly data from HSH.com, the overall average rate for 30-year fixed-rate mortgages (conforming, nonconforming and jumbos) decreased by a single basis point (0.01 percent) sliding back to 4.17 percent and managing to hit a new 2014 low. The overall average rate for 15-year fixed-rate mortgages failed to move at all for a third consecutive week, again holding steady at an average rate of 3.43 percent.
Federal Housing Administration-backed 30-year fixed-rate mortgages remained unchanged as well, producing a second steady week at an average of 3.91 percent, as these fully-insured offerings remain the best-priced long-term mortgage product in the market. Finally, the overall 5/1 Hybrid ARM was the lone program to sport an increase, rising by four basis points to bounce back up to an average rate of 3.11 percent for the week ending Aug. 29.
Why have mortgage rates remained incredibly stable?
Mortgage rates have been holding near a perfect balancing point. The argument for higher rates generated by a growing domestic economy is nearly as weak as the argument for lower rates generated from a troubled global economy. Neither force seems to be in a hurry to change, and if anything, these counterbalances may even be intensifying somewhat.
3 reasons mortgage rates are falling
A weak Eurozone. For its part, weak growth and low inflation in the Eurozone may prompt the European Central Bank into action before long, and they would be expected to follow the Fed's path of a bond-buying program in hopes of supporting growth and lifting prices. This belief is already pressing down overseas yields, and an actual program would probably enhance this move. Low yields over there make U.S. Treasuries look attractive, and so demand for our debt is ramped up as investors snap up chances to get relatively high rates of return. This demand raises the prices of bonds, which in turn trims yields, helping mortgage rates to fall.
Foreign political troubles. Political troubles in the Middle East, Russia and Ukraine's rumblings, and other hot spots also give investors the willies; in such a situation, better to be safe than sorry, so money that might be in harm's way is often relocated into in Treasuries, too, with this additional demand also serving to press U.S. mortgage rates lower.
U.S. economic concerns. A lack of inflation and a still-soft job market is another reason why interest rates can fall even as the Fed continues to trim its purchases of Treasuries and mortgage-backed securities. There is more than sufficient demand to meet available supply, and with a sliding budget deficit and weak mortgage origination market, there is rather less supply available.
Mortgage rates will remain low
The conditions to keep mortgage rates low, or even potentially lower them somewhat more, are in place on their end of the seesaw. On the other end, the growing U.S. economy is doing what it can to keep expanding, too, and the latest data suggest that we will continue on an upward economic path.
Balance is a great thing as it pertains to mortgage rates. The flatness for rates can produce a beneficial level of confidence amongst mortgage borrowers. That said, a lack of movement one way or the other can lull the market to sleep, as there is no compelling call for immediate action by borrowers to try to capture a fall (or preempt a rise) in rates.
Summer came to an unofficial end this week, and at the moment, all indications are that a drift lower in mortgage rates is likely in the week ahead, but any outsized gains in the first-week-of-month economic data would tend to temper any decline, keeping it to a decline of just a few basis points at best.
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