Interest rates dip to new 2014 lows

Interest rates for buying a home on the Palos Verdes Peninsula dipped slightly last week to new lows for 29014.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“Important economies around the world are struggling, and we may be on the verge of a Euro-style QE program before too much more time passes. Efforts over there to produce more inflation and growth are beneficial to mortgage borrowers here for a number of reasons, not the least of which is that yields on our relatively safe-and-secure debt (including newly issued MBS) are very attractive to investors relative to that available from other places. While our 10-year Treasury bonds are yielding about 2.5 percent, comparable investments available in Germany offer about 1.3 percent, and Japan about 0.6 percent… and “riskier” sovereign debt pays about about a half-point more from Italy and Spain. U.S. yields are still attractive and safe even considering currency exchanges and tax issues, and new MBS, perhaps the best quality in a generation, offer a touch more risk but also higher yields, too.

The specter of QE-style stimulus by the European Central Bank underscores two considerable issues: Growth in the Eurozone remains tepid and inflation is too low for their liking. Stimulus in the form of lower rates may only serve to make any of their offerings of debt less attractive to yield-starved investors, who may choose instead to send their money here, keeping our own interest rates from rising despite an improving economy… and one featuring a touch more inflation of late.

If this unfolds, interest rates are more likely to hold at lower levels than not, even with the Federal Reserve withdrawing itself from the market. In some ways, it could not be working out better for the Fed, who hoped that there would be sufficient private capital to step in and snap up Treasury and MBS as it exits the arena, since their diminished purchases have been expected to foster a rise in rates this year.

Turns out that’s not the case, at least for now.

“Things seem to be getting better, but it seems like it will continue to be a grind, even with little flares of positive activity from time to time. Next week, we’ll get a look at the minutes of the last Fed meeting to what those folks think of the situation, review sales of new and existing homes for April, and a few other items. We’ll probably hold around present levels for the next week. If rates should slip a little more, we’ll be making “lowest since year-ago” references, rather than six-month ones.

The following are interest rate quotes from American California Financial: