Interest rates remained essentially unchanged at record lows at the end of the week. Following are some excerpts from this week’s newsletter on interest rates from HSH Associates :
“Mortgage rates can’t seem to stop plumbing new depths, settling at new record lows again after nudging higher earlier in the week. A continued string of disappointing economic news and a European currency teetering on the edge of at least partial dissolution is keeping investor money mostly headed for safety.
An odd offshoot of that is that some money has moved back into stocks of late, as some investors seem to expect the Federal Reserve and perhaps other central banks to enact new programs to spur the economy.
While there is little doubt that the economy is stumbling along as we near the end of the second quarter of 2012, there is also doubt of the benefit of any massive new programs coming from the Fed. The latest program, Operation Twist, intends to lower long-term interest rates as the Fed sells the short-term debt it holds and purchases long-term paper instead. The Fed is also busily re-investing the proceeds of maturing mortgages into new MBS, creating a ready buyer for these bonds and in turn serving to keep mortgage rates low. The present program is slated to conclude at the end of June. The market and the Fed in conjunction have already driven interest rates to record lows, but still, the economy remains weak. It is unclear what benefit, if any, will come from even lower interest rates.
That said, we don’t think the Fed will offer any major new programs. Instead, we think that an extension of at least a portion (if not all) of Operation Twist until the end of 2012 is most likely. In this way, the Fed can continue a now-familiar support for rates and mortgages. That said, there is a chance that they will not continue the Treasury-recycling portion of the program, but will continue to make a market for mortgages. As such, they could claim victory for one portion of the program (that interest rates have been moved lower) while still offering important support for the still-troubled housing market. The could also state that they would consider restarting the Treasury portion of the program should interest rates rise to less-supportive levels.
The Fed meets again next week to consider their options, and the domestic and global economy at large. The meeting concludes on Wednesday, and some clarity as to the Fed’s intentions may come in the statement which follows the close of the meeting.
If the Fed was to stop all present supports by letting OpTwist expire, we wonder: How much, if any, damage would it do? A lack of support suggest a slower economy, a slower economy suggests a weaker stock market and investors plowing even more into bonds, which would tend to lower rates even further.
One way or another, mortgage rates have little reason to move very much. The Greek elections over the weekend seem likely to spook the markets further, but which way they will turn is unclear at the moment. We get a couple of looks at the housing market next week, as the National Association of Homebuilders, Housing Starts and Existing Home Sales are all due out, among a handful of other reports. Figure on wobbly markets for much of the week, with mortgage rates ending about where they started. ”
The following are interest rate quotes from Al Hermann of American California Financial :
30 Yr Fixed FHA
Conforming 30 Yr Fixed up to $417000
Conforming Jumbo 30 Yr Fixed $417001 – $625500
Jumbo 30 Yr. to $1.5 Mil
Jumbo 7/1 ARM $1.5 Mil (higher loan amt available)