Maureen Megowan's Blog

head_left_image

Interest Rates Remain Unchanged

 

Interest rates remained unchanged this week, after having increased about 1 percentage point over the last month from their historic lows.The following are excerpts from the newsletter on interest rates published by HSH Associates :

"With only a light calendar of new information to work from, mortgage markets had what might be considered the first week of "doldrums" this summer. There were few new clues as to whether the economy is moving closer to escaping the present pattern of modest growth, and nothing to suggest that the Fed is more or less committed to trimming QE supports after the close of the next FOMC meeting in September. This still seems a likely starting point to us, but coming data will likely provide much greater clarity in that regard.

There is something to be said about a pause in activity; it's a chance to catch your breath and such, and a break can allow an opportunity for reflection of what has occurred and where we might go from here. For now, mortgage rates remain nearer to multi-year highs than not.

 

 

The rise in rates during the spring and summer may or may not have done much damage to the purchase market. We'll see the effects of that as the next sets of reports on new and existing home sales come out, but so far, housing starts and building permits were all measurably lower in June than in May. We also know that refinancing activity has ground to a halt as a result of the rise in rates, and there are some early indications that strong home price gains may be slowing.

Interest rates and home prices are at opposite ends of a see-saw. In order to preserve a given level of affordability ("balance", if you will), one must generally decline when the other increases (or, for example, if prices remain firm, affordability will re-balance when incomes catch up). Standard mortgage qualification produces a maximum monthly payment a potential borrower can carry, and in turn, that amount will buy the borrower a given number of thousands of dollars. How many thousands is dependent upon the interest rate available; lower rates allow more, and higher, less. Ultra-low mortgage rates at times over the past year have allowed home prices to rise quite strongly, with double-digit year-over-year gains in many places. Lower interest rates promoted these price gains, as borrowers could carry more thousands of dollars for the same monthly payment. Now that rates have risen, this is less the case.

The price of credit and cost of the asset are but two factors in the equation. Another is the availability of credit, or access to it by potential borrowers. In this regard, loosening underwriting standards can open the markets to somewhat more people, and we have seen some improvements in this area over the last four quarters. Relative to the tightening cycle, the improvements have been modest, and far more lenders are still holding the reins tight, but we should expect to see somewhat more easing in time, as the losses of yesterday's loans fade and market conditions for lending continue to improve.

It should be noted that any of these improvements -- access to money with a lower credit score, downpayment, documentation, etc. -- are occurring in the "private" mortgage market, largely comprised of jumbo and other non-conforming mortgages, or those written for portfolio holdings, like shorter-term fixed rate mortgages and ARMs.

With Fannie, Freddie, the FHA and other government programs making up perhaps 90 percent of the market, no one should expect widespread changes in access to mortgage money until these firms reduce their barriers to credit, or until a new secondary market for mortgages forms outside their influence. With many of the regulations that will form the basis of the next mortgage market still unwritten, that probably won't happen very soon.

So where does all this leave us? Wandering about, for the moment. There are a few additional bits of valuable data out next week, including Retail Sales, measures of Consumer and Producer Prices, worker productivity estimates and a couple of regional views on manufacturing. However, we'll be most closely evaluating the latest report from the National Association of Homebuilders, to see is there has been an diminishment of enthusiasm, and also whether June's fall off in housing starts and building permits was a one-month blip or something more. At the moment, odds favor that mortgage rates won't move by very much next week, when we could wobble a few basis points up or down by the time Friday rolls around."

 

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

 

       

4.375

4.518

Details

       

 

Jumbo 30 Yr. to $1.5 Mil

Rate

APR

 

       

4.600

4.735

Details

       

 

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

Rate

APR

 

       

3.250

3.117

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 • August 09 2013 05:58PM

Comments

This blog does not allow anonymous comments