Interest rates Up again this week

Interest rates moved up slightly this week, and have 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 :

“The headlines were full of “mortgage rates jump” stories this week as volatility in the market continues. While true, most of the upward bump came early in the week, and things have flattened out and perhaps even eased a little over the last few days. Regardless, there is little suggestion to be seen anywhere that we’ll find any substantial or lasting downturn in mortgage rates anytime soon.

In recent days, it would appear that the markets have adjusted to the notion that the Federal Reserve will be beginning the process of tapering its purchases of bonds and mortgage-backed securities. Fear of this impending change (and a modestly growing economy) is what pushed mortgage rates to these levels over the past few weeks. Still, even if the beginning may be near, we still do not know the potential velocity of the move — that is, how fast the Fed will taper.

The Fed has made it as clear as they can that this is likely to be dictated by incoming data, especially that of employment and to a lesser extent at the moment, inflation. This being the case, it is reasonable to expect volatility around the release of these reports, much as we saw from last Friday’s employment report, the impact of which carried into this week, pushing rates higher.

It bears noting that we’ve seen these kinds of markets before, where a single strong piece of key data (such as the employment report) released into a jittery market can bounce rates higher… but where it takes a volume of softer and ancillary data just to nudge rates lower. Should these dips come, consumers would do well to take advantage by locking in their rates.

So where do we stand at the moment? A modest-to-moderately growing economy, with little inflation, in the context of global economy with plenty of evident softness and lots of considerably headwinds. To that, we’ve added a full percentage point to long-term interest and mortgage rates, and it is yet to be seen how this will impact the strength of an important economic growth driver. Mortgage applications have been falling for a number of weeks, with refinances impacted of course more than purchases, but purchases are slipping as well. It will be a month or more until we see the full effect of rate increases, and the prospect for higher rates is stronger than lower ones in the interim.

Even after a couple of whipsaw weeks for rates, there’s plenty of reason to expect continued volatility. Our best guess for next week at this point is a slight easing, possibly five basis points or so, but a wider swing in either direction wouldn’t surprise us at all.”

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