April 1st, 2013
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.
Mortgage rates have been higher in 2013 than the end of 2012, largely driven there by growing optimism about the prospects for the economy and the Federal Reserve pumping cash into the market, boosting asset prices, especially stocks. With a choice to keep money in ultra-safe investments like Treasuries which yield almost nothing or jump into stocks, which are up about 9 percent this year, at least some investors have opted for stocks which has led to firmer interest rates.
Mortgage rates move little
For interest rates overall and mortgage rates in particular to continue to move higher, we’ll need to see continued economic improvement. While that does seem the most likely path at the moment, there are some signs of a forming pause in the upward path for interest rates.
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator—found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) eased by one basis point (0.01 percent) to 3.82 percent.
The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) was unchanged at 3.05 percent for the week ending March 29.
FHA-backed 30-year fixed-rate mortgages managed a decline of only one basis point (0.01 percent), drifting to an average rate of 3.39 percent, and the overall average rate for 5/1 Hybrid ARMs increased by one hundredths of a percentage point, landing at an average 2.67 percent, just two basis points above all-time lows.
Economic growth continues at a minimum
Although all signs point to stronger economic growth in the first quarter of 2013, where Gross Domestic Product (GDP) is expected to return to a 2 percent plus level, the final reading of GDP for the fourth quarter of 2012 suggests we have a long way to go to regain even that meager level.
During the final period of 2012, GDP rose by just 0.4 percent. While a second consecutive upward revision from the original estimate of a decline, it was a far weaker period than was the third quarter, where a 3.1 percent figure was achieved.
The tax increases and the end of the payroll tax holiday as part of the “fiscal cliff” resolution and the sequestration of government spending now in place makes it that much harder for the economy to grow more quickly. However, important components of the economy are much improved when compared to the last couple of years and should provide at least some upward push for growth. We’ll not see the first quarter measure of GDP for another month yet, but indications point to improvement.
Mortgage rates should rise this week
Without a Cypriot banking event to keep moving rates downward, and with record highs for the stock market beckoning, we think that mortgage rates are somewhat more likely to rise this week than fall by the time the week is through. To move them much, though, we’ll need to see a litany of both stronger economic news and some indication that the Fed’s asset-purchase programs are likely to change. Our new two-month forecast discusses this in greater detail.