Interest Rates Remain Unchanged for the Week

Interest rates remained flat this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“Mortgage rates have been higher in 2013 than the end of 2012, largely driven there by growing optimism about the prospects for the economy, and a Federal Reserve pumping cash into the market, boosting asset prices, especially stocks. With a choice to keep money in ultra-safe investments like Treasuries which yield almost nothing or jump into stocks, which are up about 9 percent this year, at least some investors have opted for stocks. That shift in demand from safety in search of returns has firmed interest rates.

For interest rates overall and mortgage rates in particular to continue to move higher, we’ll need to see continued economic improvement. While that does seem the most likely path at the moment, there are some signs of a forming pause in activity and the upward path for interest rates.

Although all signs point to stronger growth in the first quarter of 2013, where Gross Domestic Product (GDP) is expected to return to a 2 percent plus level, the final reading of GDP for the fourth quarter of 2012 suggests we have a long way to go to regain even that meager level. During the final period of 2012, GDP rose by just 0.4 percent. While a second consecutive upward revision from the original estimate of a decline, it was a far weaker period than was the third quarter, where a 3.1 percent figure was achieved.

The tax increases and end of payroll tax holiday as part of the “fiscal cliff” resolution and the sequestration of government spending now in place makes it that much harder for the economy to grow more quickly. However, important components of the economy are much improved when compared to the last couple of years and should provide at least some upward push for growth. We’ll not see the first measure of GDP for the first quarter for another month yet, but indications point to improvement.

Along with the mix-and-match data of late, the “on-again, off-again, on-again” arrangement of a bailout for Cyprus banks continues to give investors pause. Influential yields on ten-year US Treasuries were down a little over the last week, and so mortgage rates are largely holding fast in present territory. That might change a little if fresh data starts to show more economic expansion happening; the parade of new first-week-of-the-month data starts week with the ISM’s manufacturing and service business indexes, auto sales, construction spending, consumer credit usage and the all-important employment report for March.

Without a Cypriot banking event to keep moving rates downward, and with record highs for the stock market beckoning, we think that mortgage rates are somewhat more likely to rise next week than fall by the time the week is through. To move them much, though, we’ll need to see a litany of both stronger economic news and some indication that the Fed’s asset-purchase programs are likely to change. “

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