Interest Rates Inch down again

Interest rates moved down slightly again this week to new record lows .The following are excerpts from the newsletter on interest rates published by HSH Associates :

“A combination of mixed economic news and an ever-impending fiscal cliff pushed mortgage rates down just a little this week. Hurricane Sandy’s distortion of some of the latest economic date make it hard to clearly discern the underlying trend, but there’s nothing we can see which suggests that any imminent spurt of growth is forming anywhere.

The Federal Reserve meets next week to discuss the state of the economy, and to sunset, extend or replace Operation Twist, their program of selling the Fed’s holdings of short-term Treasurys in favor of longer dated ones. The program — which included the recycling of money from old mortgage bonds into new — is slated to terminate at years’ end. At the moment, and with low interest rates key to the recovery, it is widely expected that the Fed will announce a new program of outright purchases of Treasuries. This in turn should serve to keep long-term interest rates low, a happenstance of keen interest to potential mortgage borrowers.

While some aspects of the economy are no doubt stronger, others still have tenuous gains at best, and the change to tax policy and cuts in government spending (forced by cliff or from agreement) will slow the economy. How much drag will come is a matter of debate; regardless, a slower economy is usually good for mortgage rates, as broad demand for credit is tempered throughout the economy. With mortgage markets already fully supported by the Fed, there may not be a huge amount of room for rates to fall, but there may be some declines as a result of a slower economy after the cliff comes or an agreement is reached.

Until then, we wander through murky waters, and rates can be expected to continue to be mostly directionless. Aside from the Fed meeting next week, where a new bond-buying policy will likely be detailed, there is not much economic data due out to drive the markets one way ot the other. For the most part, mortgage rates are in no hurry to go anywhere fast, so little change can be expected next week.”

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