Mortgage Rates Remain Steady

Three weeks ago, the Mortgage Calculator concluded a post as follows, “Unless something dramatic happens and/or until there is stronger evidence that the economy is recovering, I don’t personally expect rates to fluctuate much over the next few weeks.” Since then, rates have increased by a modest .05%, without fluctuating by more than 6 basis points in either direction during that period. Sorry to toot my own horn, but I couldn’t resist the opportunity…

According to Freddie Mac, the vanguard for mortgage rate data, “Mortgage rates in the U.S. rose for a second consecutive week…The average 30-year rate increased to 5.25 percent from 5.2 percent…The 15-year rate was 4.69 percent.” Despite having risen above the record low 4.78% touched in April, mortgage rates still remain well below the 2009 high of 5.6%, and even further below average historical levels. For borrowers that opted to use points to buy down their interest rate, “The nationwide average in the Freddie Mac survey was 0.7 point for 30-year and 15-year fixed mortgages. Five-year, adjustable-rate mortgages averaged a 0.6 point, and one-year, adjustable-rate mortgages.”

Still, it’s not clear that lower rates are trickling down and resulting in actual loans. The Mortgage Bankers Association “seasonally adjusted index of mortgage applications fell 6.3 percent from the previous week.” But this can be attributed to lender reluctance, rather than a decline in borrower demand. “Rates may be low, but I think lenders are still being very cautious. Lenders are just being careful about who they lend to,” said one analyst.

There is also evidence that the composition of mortgage lending is changing. “The number of people refinancing also decreased to 52.6 percent of the total applications from 55.5 percent the previous week.” It’s difficult to say whether this is a good sign or a bad sign. On the one hand, it signals that refinancing activity may be leveling off as rates trend upwards, but it also signifies that more first-time borrowers are entering the market, relative to existing borrowers.

At this point, mortgage rates still appear close to equilibrium, with prices being driven more by financial market dynamics than by the supply and demand for mortgages. “Bond yields rose slightly higher this week on market optimism that the economy may be stabilizing somewhat, and mortgage rates followed those yields,” said Frank E. Nothaft, Freddie Mac’s chief economist. In addition, as the stock market rallies, many investors are shifting funds from bonds to stocks, which tangentially results in higher mortgage rates.

Stay tuned for tomorrow’s post, when we examine in more detail how (a lack of) fluctuations in mortgage rates is affecting the housing market…