As expected, interest rates bumped up about a tenth of a percentage point this week .The following are excerpts from the newsletter on interest rates published by HSH Associates :
“Mortgage rates moved higher this week, boosted by solid economic data with little to the contrary to be found. If anything, fresh data out seemed to buttress last week’s reports, denoting an economy perhaps more resilient than could be expected, given recent tax bites and certain price pressures. Even with the recent rise in rates, which have served to move us about a third of a percentage point off the record lows seen in December, it’s important to retain perspective about where they are at the moment.
Even with the rise from the bottom of the bottom for rates, they have only returned to levels recently celebrated as “new record lows!”
That’s not to say that increases in rates are welcome or desirable, but they are to be expected. In fact, the stronger the economy becomes, the higher rates may grind; the Federal Reserve is keeping them low to goose the economy, but an economy responding to the Fed’s medicine will soon see less of a need for it in order to function. If not otherwise manipulated, higher rates are the natural result of a growing economy, as rising demand for available credit supply and concerns about inflation allow costs to rise.
Some of the price of credit is determined by inflation, both actual and potential. Depending upon where one looks, inflation can be seen — at the gas pump, at the grocery store, in the stock market, and even in home prices in some places. The Federal Reserve has moved toward explicit speed limits for prices in the past year, and it would seem that their supportive policies are having at least some effect on costs.
The Fed has an official 2% limit on inflation, but has allowed itself some wiggle room by indicating it would tolerate prices to run perhaps 2.5% for some time before considering changing loose-money policies. Leaving themselves some room has turned out to be a good idea, since the Consumer Price Index has run at or above 2% on an annualized basis at times over the past six months. In January, the headline CPI spiked by 0.7%, driven by expensive gasoline, and like its PPI twin, leaving the most volatile items on the side finds just a 0.2% rise in costs for the month. However, over the last 12 months, consumer inflation in both the headline and core measures are at two percent and have nudged a little higher of late. If price pressures continue to show, interest rates may also nudge higher as a result.
A true inflation spiral — higher prices cause higher wages which can cause higher prices (or vice versa) — probably can’t happen without a strong labor market. We remain pretty far from that, but there has been some concern expressed that the long duration of unemployment for some people may have eroded skills, making it hard for employers to quickly find qualified people to meet any upsurge in demand. Those with skills and jobs may find themselves in a stronger bargaining position, and wages could rise as a result of that leverage.
“Mortgage Rates Moving Higher”. After years of “Mortgage Rates Declining” or “New Lows for Rates,” it’s a headline that we all must ultimately get used to, as it will become a more and more commonplace occurrence as we wend our way into the future. Still, that future remains in the future, but no one should expect that seeing headlines of an improving economy have no effect on the behavior of investors, Federal Reserve policies or not.
It wouldn’t surprise us if the lift in rates since we turned 2013 has trimmed some optimism among those in the housing sector. We’ll get a look at that next week, as the National Association for Home Builders will report in on the moods of its members. Housing starts and building permits will also provide some clues, and we’ll also have a few other indicators to work with. The Federal Reserve has a meeting next week, and there will be no change to the various policies the Fed is maintaining. However, the release of the minutes in three weeks’ time may provide clues as to how quickly these programs may change.
Rates were firm all week long, and probably will be next week, as well. We would expect perhaps a couple of basis point lift in mortgage rates by the time the week is through, but if the housing news isn’t that strong, we just might move the other way by a similar amount.”
The following are interest rate quotes by 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)