Interest rates for buying a home on the Palos Verdes Peninsula moved down slightly this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :
“More signals that all is not right in the economic world were revealed this week, and interest rates legged down a bit again. That the U.S. economy lost steam in the fourth quarter of 2015 was a given, and the deceleration from a 2 percent rate of growth in gross domestic product in the third quarter to one of just 0.7 percent in the fourth wasn’t unexpected.
The Federal Reserve made no change to interest rate policy this week, either; none was expected. However, ever without a rate move, the central bank managed to help roil markets anyway, as they removed from their meeting-closing statement any assessment of the current balance of risks for economic growth and inflation. Sharp-eyed analysts picked up on this immediately, and coupled with other language in the release, took it to mean that the Fed has serious concerns about the effects that current global trends will have on U.S. growth and inflation. A concerned Fed is less likely to raise rates, and this helped lend some cheer to battered stock markets and helped interest rates to fall.
Much of the downward pressure for rates came on Friday, when the Bank of Japan joined several other nation’s central banks by making banks actually pay them interest to park excess cash reserves with them. This move is intended to have banks not hold onto this cash, but instead push it out into the markets and making more loans to consumers and businesses in hopes of stimulating growth and inflation. However, at least the initial reaction would seem to be that excess funds from everywhere got plowed into bonds instead, driving yields on Japan’s sovereign bonds to record lows; German Bunds also got a significant wash of cash, and their 10-year yield dropped sharply as well. U.S. and other bonds caught a strong rally, too.
So a wobbly and unstable economic world continues, at least for now leaving the U.S. perhaps the most reliable place to park money. As long as this continues to be the case, we’ll continue to attract funds, excessive or otherwise, which in turn will continue to temper and tether interest rates. In some ways, this might even be considered an echo to the “conundrum” described by former Fed Chairman Greenspan back in the mid-part of the last decade; the Fed was raising short-term rates steadily at the time in the midst of 17 consecutive increases, but despite the Fed’s moves, long-term rates refused to budge. Now, as then, there was likely plenty of money washing around the world after a long bout of stimulus (though considerably smaller than that seen today) looking for a place to go, and any return on capital (even if puny after currency exchanges and taxes) is still better than no return or a loss.
Forecasting rates in this kind of environment is more than humbling, and we’ll need a reversal in trend to rescue our current two-month forecast, to be sure. At the very least, we will begin next week with interest rates stepping down, but there is plenty of fresh important data that may sway the markets, too. For the last couple of years, a weak start to the year has been followed by a strong uptick in growth by the time the second quarter rolls around. Given that the current weakness started earlier (4th quarter) it remains possible that we could see an earlier improvement, too. That said, January’s data is just starting to show, and probably won’t be much better than December’s, if at all.
Rates are likely to end the next week down a bit from here, probably 6-8 basis points or so. Will the groundhog signal six more weeks of economic winter or an early warming trend? We’ll have to wait to see.”
The following are interest rates quotes from American California Financial:
30 Yr Fixed FHA
3.250 4.379 Details
Conforming 30 Yr Fixed up to $417000
3.625 3.743 Details
Conforming Jumbo 30 Yr Fixed $417001 – $625500
3.875 3.983 Details
Jumbo 30 Yr. to $1.5 Mil
3.750 3.842 Details
Jumbo 7/1 ARM $1.5 Mil (higher loan amt available)
3.000 3.444 Details