Interest Rates Inch down again this week

Interest rates moved down again a bit this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“For the last couple of years, market optimism that the economy was finally ready to bust out into self-sustaining growth formed in the mid-winter. In each case, winter’s hopes gave way to spring’s reality, and evident troubles in both domestic and global economies crushed those dreams, driving mortgage rates downward. While things are different in 2013 than 2012 or 2011, we may simply have a different set of problems which produce the same result. Concerns that the economy was becoming strong enough so as to suggest an early end to the Fed’s QE3 campaign have been pushed aside, as weak consumer and labor market data have again moved to the forefront.

Mortgage rates have recently dipped after a peak, much as they did during the last two winter-to-spring period. Will it continue?

Demand for mortgage credit, spurred by refinancing and augmented by a housing market finding some footing also plays a role. Supply and demand isn’t dead as a market mechanism, and busy mortgage lenders have had little reason to chop rates to attract new business. A bump in interest rates, though, tends to cool refinance demand, and with only a limited bit of purchase-money business to go around, lenders tend to be tempted to market more aggressively, trimming rates.

As home sales have stopped accelerating and are holding a plateau at the moment, refinance activity has begun to slow as the pool of homeowners who can refinance profitably or successfully is becoming sated. This slowing of demand may be a partial reason for the slippage in mortgage rates of late, with concerns about the economy the other component.

But does all this presage a new spring swoon for the economy in general and mortgage rates in specific? “Past performance is not a reliable indicator of future returns”, as the investment types like to say. The economy is on better footing (sort of) this year than the last two, somewhat more people are employed, the housing market is greatly improved and more. But troubled overseas economies means it will be hard to grow exports, so that economic support is weakened, and higher taxes for some (and higher payroll contributions for all) plus government sequestration kicking in does suggest that slow growth, at best, is in the offing. The fourth quarter of 2012 sported only 0.4 percent GDP growth, and even with a fairly strong January and February overall, March failed to exhibit any upward momentum, so we may struggle to see an initial GDP reading in the low to mid twos as a result. This despite all the extraordinary supports, low interest rates and markets flooded with cash.

It’s a fact that mortgage rates tend to fall more slowly than they rise. Poor economic data and some flight-to-quality buys of Treasuries have pressed interest rates lower, at least somewhat. If the drumbeat of weak news continues, we could see a slow slide into summer for mortgage rates, but it seems unlikely that we’d get one of 50 basis points or so such as those that happened in the last couple of years.

Next week, we’ll get a look at a couple of housing indicators, two reports covering regional manufacturing activity, industrial production and the Fed’s own survey of regional economic conditions. Mortgage rates dipped last week and this one, but we seem likely to pause at about these levels for next week. “

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