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Interest rates Up again this week

Interest rates moved up slightly this week, and have increased a bit over six-tenths of a point over the last couple of weeks.The following are excerpts from the newsletter on interest rates published by HSH Associates :

"So much for an early-week stall in the upward trend for mortgage rates. While the statement provided at the close of the Federal Reserve policy meeting didn't suggest anything more than a somewhat rosier assessment of current and expected conditions, there was nothing more clear than Chairman Bernanke's words at the press conference which followed:

"If the incoming data are broadly consistent with [the Fed's] forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program."

An awful lot of "ifs", to be sure, but the market got exactly the message it was fearing: the end is coming.

 

For bonds and mortgage rates, the effect of the Chairman's remarks was both immediate and persistent, with a strong selloff driving yields on influential 10-year Treasuries to over 2.5% by late Friday. This dragged conforming 30-year fixed mortgage rates to daily highs not seen since August 2011.

The Chairman noted in his comments that housing was a "support to growth." In the months ahead, we'll see to what extent that the recovery in housing was dependent upon near-record low rates. From our view, if not enough to damage the recovery in housing, the increase in rates seems sufficient to at the very least distort the upward path for home sales and prices.

Of course, there have been some concerns expressed in recent months that some kind of "bubble" was again forming in residential real estate, with strong demand finding little available inventory (thus pumping up home prices). Although that may or may not be the case, depending upon where you live, the fact is plain: higher borrowing costs will temper demand to a degree, and that tempering of demand should serve to slow home price gains and sales to some degree.

In May, the median priced home sold was $208,000, according to the National Association of Realtors. Assuming a 20% down payment, a borrower who got a rock-bottom rate last month would see a monthly payment of about $746; with conforming 30-year rates now at 4.33% on Friday, that same mortgage will run about $826 each month, so a monthly payment now would be about about 11% higher than it was last month. With the rise, and all things being equal, a marginal borrower might be pushed back out of the market unless home prices were to back off a little.

Mortgage rates don't appear to have finished increasing just yet, and the mild rise in the figures above are masking some strong upward momentum. As we noted, Friday's 30-year conforming average of 4.33% was the highest daily value since the end of August 2011, and we are starting next week with a considerable upward bias. The available data due out, including that from the Chicago Fed, an update of GDP, sales of new homes in May and more seems unlikely to do much to temper the increase. The four basis point rise this week will give way to perhaps a 20-basis point increase or more by the time June comes to a close next week."

The following are interest rate quotes from Al Hermann of American California Financial:

30 Yr Fixed FHA

Rate

APR

 

       

3.750

5.072

Details

       

 

Conforming 30 Yr Fixed up to $417000

Rate

APR

 

       

4.250

4.399

Details

       

 

Conforming Jumbo 30 Yr Fixed $417001 - $625500

Rate

APR

 

       

4.500

4.644

Details

       

 

Jumbo 30 Yr. to $1.5 Mil

Rate

APR

 

       

4.875

5.012

Details

       

 

Jumbo 7/1 ARM $1.5 Mil (higher loan amt available)

Rate

APR

 

       

3.625

3.412

Details

       

For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.

Comment balloon 0 commentsMaureen Megowan • June 21 2013 08:00PM

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