August 6th, 2012
“That things aren’t still getting worse is an encouraging sign.”
-Keith Gumbinger, vice president of HSH.com
Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox:
With the European Central Bank President Mario Draghi pledging that the ECB “is ready to do whatever it takes to preserve the euro,” the Federal Reserve held a two-day policy-setting meeting last week and decided to offer no additional stimulus to the economy at the moment.
“The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed,” read the statement which accompanied the close of the meeting.
The Fed only recently extended Operation Twist, and no doubt wants time to see if that money-recycling program will do the trick or not. Part of the effort is to lower long-term interest rates, while another portion seeks to specifically lower mortgage rates.
So far, so good, even if mortgage rates did nudge higher this week.
Mortgage rates nudge higher
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages rose by a lone basis point (.01 percent) to 3.86 percent.
The FRMI’s 15-year companion also rose by a single basis point, landing at 3.16 percent, two ticks above a record low.
Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages rose by two basis points to 3.42 percent, the series’ first bump in six weeks, while the overall average rate for 5/1 Hybrid ARMs finished the weekly survey at 2.80 percent, holding at a record low for the most popular kind of ARM.
Economy: Not a recession, not an emergency
Overall, the economy is tepid at best, but the latest data suggest that there is no continuing freefall after a Euro-led downturn in the second quarter. Things are tentative and shaky, no doubt, but things could be worse.
The Federal Reserve is right in holding off from taking new measures unless things do become more dire, since the boost from previous policy action has been limited at best, and there is no indication that even lower interest rates will be the right tonic for what ails us. Should the economy worsen, the Fed will of course take steps to try to get it going again, but their options are limited. It should be noted that a 1.5 percent growth rate isn’t much, but it’s not a recession or even an emergency, either, and compares favorably with many other economies.
With the news of the defense of the Euro and the mild improvement in the U.S. economy, the frazzled nerves of investors have been soothed somewhat. As a result, at least some money has been pulled out of safe-haven investments like U.S. Treasuries, and yields have risen a little bit. There’s no reason to expect that rates will continue to climb at this point as there’s little to support any sustained move upward.
With a lighter calendar of economic news out this week, we could see a slight uptick again as we bounce around the bottom.