The latest mortgage information shows that interest rates were up slightly this past week.  Still very affordable rates.  They remain at near historic lows.  Here’s what’s driving our rates as shared with us by Paul Soule, Senior Mortgage Advisor with PHH Home Loans in Ocean City, Maryland.

March 24, 2011

Inflation Concerns Hurts Bond Demand

Freddie Mac’s latest survey reports a slight increase in mortgage rates this week. Concerns about inflation and political unrest drove investors away from bonds, pushing prices down and rates higher.

This week, the 30-Year fixed-rate mortgage (FRM) edged up to an average 4.81 percent , compared to last week when it was at 4.76 percent. Last year at this time, the 30-year FRM averaged 4.99 percent.

The 15-year FRM this week averaged 4.04 percent, up from last week when it averaged 3.97 percent. A year ago at this time, the 15-year FRM averaged 4.34 percent.

The 5-year Treasury-indexed hybrid ARM also moved higher,  averaging 3.62 percent this week, compared to last week when it averaged 3.57 percent. A year ago, the 5-year ARM stood at 4.14 percent.

Similarly, the 1-year Treasury-indexed ARM rose to an average 3.21 percent, up from last week when it averaged 3.17 percent. At this time last year, the 1-year ARM averaged 4.2 percent.

Frank Nothaft, chief economist for Freddie Mac, cited inflation as a leading cause for the increases, explaining, “Mortgage rates were up this week compared to last, but still remain at relatively low levels. The rate uptick was related to higher than anticipated inflation data for February and ongoing geopolitical concerns. The 12-month growth rate in the consumer price index rose 2.1 percent in February, compared to 1.6 percent in January; however, most of the increase was due to food and energy prices, which tend to be volatile. The core index rose 1.1 percent, slightly up from 1.0 percent in January. “

Nothaft also commented on the broader housing picture. He said, “The housing market recovery experienced a setback during the start of this year. Existing home sales fell 9.6 percent from January to February and were down 2.8 percent from February 2010.  Sales of new homes declined for the second consecutive month in February to record lows dating back to 1963. Even new construction on one-family homes fell 11.8 percent in February to the third slowest pace since 1959.”

Mortgage Rates Seen Below 6% Through 2010

Even as mortgage rates remain near record lows, the Mortgage Bankers Association believes that the looming expiration of a key Federal Reserve program may increase home loan costs next year. Still, the MBA expects rates to remain extremely attractive throughout 2010, helping to juice home sales and insert a floor underneath real estate values. Here are five things you need to know about the MBA’s 2010 economic outlook:

1. Opposing forces: The MBA expects subdued inflation and high unemployment to put downward pressure on 30-year fixed mortgage rates next year. However, “there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve’s purchase of mortgage-backed securities,” Jay Brinkmann, MBA’s chief economist and senior vice president for research and economics.  “No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries.”

2. Fed programs and rates: The Federal Reserve got into the business of driving down mortgage rates in November of 2008 as it scrambled to stabilize the free-falling housing market. To that end, it announced plans to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac. In March of this year, it expanded the program to include the purchase of long-term treasury bonds and additional Fannie and Freddie assets. This asset purchase program is a key reason why rates have remained so attractive for nearly a year. Guy Cecala, publisher of Inside Mortgage Finance, says the program has brought rates roughly a full percentage point lower than they would be otherwise.

3. Getting out: But as the housing market shows signs of stabilization, the Fed is looking to unwind some of this support. Its treasury-bond purchase program, for example, is expected to conclude by the end of the month. However, in the absence of a private market for mortgage-backed securities, the Fed moved in late September to extend its program for buying up these assets. Without committing additional funds to the initiative, the Fed said it will continue buying up debt and mortgage-backed securities from Fannie and Freddie through the first quarter of 2010. (The program had been scheduled to expire at the end of the year.) By remaining in the market, the Fed can help ensure that rates remain in an attractive range for a longer period of time. And rather than risk sharply higher mortgage rates, the Fed may extend the program again, depending on how the economy and housing markets perform in the coming months.

4. Less than 6 percent: While acknowledging that the expiration of this program is likely to push rates higher, the MBA expects rates to remain in an attractive range in 2010. Fixed mortgage rates will average around 5 percent in the final quarter of this year and rise to 5.6 percent by the end of 2010, the MBA predicts.

5. Sales and prices: The MBA predicts the unemployment rate will peak at 10.2 percent in the second quarter of next year. Nevertheless, the trade group expects to see an increase in home buying activity next year, with exiting-home sales up 11 percent from 2009 levels and new-home sales increasing 21 percent. In addition, “[national] average home price declines should abate by early 2010, but will vary by state and home value,” the MBA said in its press release. “The demand will be highest for entry-level homes.”

Mortgage Rates This Week – Relatively Unchanged

NATIONAL RATE SURVEY RESULTS (10/29/2009 Results)

30-year Conv:          5.35% -- w/ avg. points: 0.37 pts

15-year Conv:          4.74% -- w/ avg. points: 0.37 pts

30-year FHA:           5.27% -- w/ avg. points: 0.17 pts

5-year ARM:            4.64% -- w/ avg. points: 0.37 pts

PHH DAILY RATE CHANGES – LAST 10 BUSINESS DAYS

Date                      Conventional                           FHA                                      VA                                        

10/29                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                      

10 Year Treasury Yield opens at 3.42

10/28                     Slightly Lower                        Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.41

10/28 (2)                Lower                                    Slightly Lower                       Slightly Lower                                     

Rate Change for the Better!

10/27                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.46

10/27 (2)                Lower                                     Lower                                   Lower               

Rate Change for the Better!

10/26                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.55

10/26 (2)                Slightly Higher                       Slightly Higher                       Slightly Higher  

Rate Change for the Worse.

10/23                     Slightly Higher                       Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.47

10/22                     Relatively Unchanged             Slightly Higher                      Relatively Unchanged                       

10 Year Treasury Yield closed at 3.42

10/21                     Higher                                     Slightly Higher                      Slightly Higher                                       

10 Year Treasury Yield closes at 3.41

10/20                     Lower                                      Lower                                   Lower               

10 Year Treasury Yield closes at 3.34

10/19                     Relatively Unchanged             Slightly Higher                      Slightly Higher

10 Year Treasury Yield closes at 3.40

10/16                     Slightly Higher                         Slightly Higher                     Slightly Higher                                 

10 Year Treasury Yield closes at 3.42

RATE FORECAST

Will rates rise or remain relatively unchanged?

Industry experts and analysts provide their insights.

8% of respondents expect rates to fall in the coming weeks

67% predict a further increase in mortgage rates while the remaining

25% forecast that mortgage rates will remain more or less unchanged

As always many thanks to Paul Soule from Coldwell Banker Home Loans for providing these statistics.