June 26th, 2011Minor aid for mortgage rates coming to an end
What will happen to mortgage rates once QE2 ends?
Thats a good question, one Im not so sure we have an exact answer to. Yet, if we gauge our response via comments from Fed Chairman Ben Bernanke last week, it seems a minor support for mortgage rates is going to disappear, possibly causing rates to increase somewhat:
The program of purchasing $600B of Treasury obligations (QE2) will come to an end at month’s end with no extension or replacement. Fed Chairman Bernanke noted that he believed the program was important in that it helped stave off the potential for deflation and may have influenced borrowing costs lower for any number of audiences. Mortgage interest rates may have received some minor ancillary benefits in that regard.
Did mortgage rates rise last week?
According to the latest figures from HSH.com, mortgage rates were pretty stable last week.
HSH.com’s Fixed-Rate Mortgage Indicator (FRMI) found that the overall average rate for 30-year fixed-rate mortgages was unchanged from last week, landing at an average of 4.77 percent.
FHA-backed 30-year fixed-rate mortgages moved just two basis points lower to close the week at 4.42 percent.
Hybrid 5/1 ARMs, whose five-year fixed periods now averages just 3.37 percent, was down by just two hundredths of a percentage point from the week prior. A borrower with a $300,000 loan willing to accept the risk of higher future payments could save about $20,000 over the next five years with this product.
Mortgage rates have recently moved down to 2011 lows, and a little flare of refinancing activity has been going on as a result. Perhaps these low rates this will spark some home sales, which could use any lift they can get at this point.
Despite mortgage rates, homebuying still way down
In May, existing homes sold at an annualized rate of 4.81 million units, the weakest reading since November 2010. The 3.8 percent decline was largely due to a falloff in sales in the Midwest and southern regions, but those may have been influenced by terrible storms and widespread flooding up and down the Mississippi during the month. With the slip in sales, inventory levels rose to 9.3 months, way above the normal which is perhaps only a six-month supply.
New home sales
Sales of new homes slipped a little more in May, easing to a 319,000 annualized rate of sale. Sales had been on a mild upswing, rising from 280,000 in February to 323,000 in April, but there is obviously no momentum to be seen here. The leveling of demand also served to level off available supply at about six months.
The new home market has been especially challenged over the last couple of years, as plenty of low-priced foreclosed homes—some only a few years old themselves—compete for buyers in a difficult market. However, with absolute supplies of built and ready-to-sell units still dwindling, construction spending on residential projects will start to contribute more to economic growth before too much longer.
Economy still searching for a spark
While better times may be in front of us as we move past a soft patch in the recovery, this weak period will unfortunately serve to temper any growing enthusiasm for at least the moment.
As such, we expect little change to mortgage rates as we start the first full week of summer.