Interest Rates have moved back up about 3/8 to 1/2 percentage point over the last three weeks as investors have become increasingly concerned with rapidly growing commodity prices and the potential for inflation. The easing of the nuclear disaster in Japan has also tended to ease the flight to safety and to treasury securities, which has led to higher yields for securities.
The following are excerpts from the newsletter published by HSH Associates dated 4/8/2011:
“Minutes of the Federal Reserve’s latest Open Market Committee meeting were released this week. Back on March 15, the Fed considered “that the economic recovery continued to proceed at a moderate pace, with a further gradual improvement in labor market conditions. Sizable increases in prices of crude oil and other commodities pushed up headline inflation, but measures of underlying inflation were subdued and longer-run inflation expectations remained stable.” At the same time, “The pace of economic activity appeared to have been a little slower around the turn of the year than the staff had anticipated at the time of the January FOMC meeting” and discussion of the effects of rising price pressures were seen throughout the Fed Staff Economic Outlook portion of the minutes. Meeting participants also noted that “rapidly rising commodity prices posed upside risks to the stability of longer-term inflation expectations […], even as they posed downside risks to the outlook for growth in consumer spending and business investment.”
“It seems to us that we are likely to find ourselves in a period of softer economic growth with generally firming prices. While not a disaster in and of itself, the rate-lifting increase in inflationary pressures seems likely to overcome the rate-reducing economic drag of the higher prices they track, at least for a time, and those higher rates do threaten to some degree hopes for a improving housing market this Spring. As such, potential buyers would do well to take advantage of any small dips in rates which may occur.”
“That firming mortgage rates are unwelcome in light of the weak state of the housing market is a given. Refinance activity has come to a fair standstill again and is down by about 13% over the past four weeks, according to the Mortgage Bankers Association of America index of applications. Conforming 30-year fixed rates are about a quarter-percentage point lower than at the same time last year, but both refinances and purchase applications are materially lower now than then. The housing market remains far from normal, and there is little sense of urgency among purchase borrowers at the moment, as would be expected in a still deflating market. With some 25% of the nation’s homeowners underwater, there remains a vast but unservable potential refinance market, one which may be many years away from again participating in the mortgage market.
That said, at least one sign of improvement in the market comes in the form of the differential between fully government-supported conforming rates and true, private market jumbo (non-conforming) rates. Pre-financial crisis, about a 20 basis point differential in rates was typical; in the worst of the market mess, that expanded by nine times normal to 180bp at its widest, but has gently retreated over time to a present-day gap of about 60 basis points. Additional narrowing seems possible but unlikely in present market conditions, but an expected increase in competition among jumbo lenders may trim it somewhat over time.
Mortgage rates have nudged higher, and the step-up in underlying interest rates this week suggests more of the same in store for next week. There’s nothing wrong with getting a 5%, 30-year fixed rate mortgage — unless you really need a 4.5% one to make your deal work.”
The following are interest rate quotes from Al Hermann of American/California Financial Services ,
|30 Yr Fixed FHA|
|Conforming 30 Yr Fixed up to $417000|
|Conforming Jumbo 30 Yr Fixed $417001 – $729750|
|Jumbo 30 Yr. to $1.5 Mil|
|Jumbo 7/1 ARM $1.5 Mil (higher loan amt available)|
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