Mortgage Rates Move Sideways

Interest rates for buying a home on the Palos Verdes Peninsula stayed flat this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“As it turns out, it would appear as though the most important item of early 2014 may not be the Fed’s decision to begin to taper QE purchases. They did begin that process and all indications are that they are committed to continuing to regular reductions in support, as Fed Chair Janet Yellen again made clear in discussions before Congress this week

The most influential item may or may not turn out to be the weather, or at least there is a lot of hope that when the snow and cold finally abate that the economy will flare higher again. Given the regular happenstance of weaker economic data over the last two months, we certainly hope that this turn out to be the case, but can’t help the feeling that there simply isn’t that much underlying pop in the economy, even when considering the effects of diminished Fed stimulus and weather issues.

With a strong spate of homebuying accompanied by bouts of high refinance activity, the housing and mortgage markets were busy places until about mid-2013, when a Fed-led spike in rates turned into something more durable, crushing refinance activity and crimping affordability. The market got increasingly quiet as the year ended, and the economy’s performance has since cooled, too. The question is, are we just now seeing the full effect of the rise in mortgage rates from last year?

In “normal” times, changes to Fed interest rate policy (such as a move in the Federal Funds rate) can take as long as six months to be fully realized throughout the economy. The abrupt rise in mortgage and other interest rates — occurring not from a change in policy, but rather a change in expectations for policy — began last May, with an interim peak in August. If the effects of that jump have taken six months to wend their way, roughly from June to December, it could very well be that we are only now seeing the full effect on the economy, or at least in certain aspects of it.

Mortgage rates aren’t high by any stretch of the imagination, but tight underwriting conditions, higher interest rates and higher home prices all have a cumulative damping effect on activity. Add in that job growth has shifted from OK to almost nil over the last couple of months, that income growth is puny and that inventories of desirable homes are tight, and you’ve got plenty of reasons why traction in housing remains hard to come by, even if the weather cooperates.

Mimicking much of the economy and certainly consumer moods, mortgage rates are moving mostly sideways. There’s just enough hope and optimism that this soft patch will break up to keep rates from falling, and just enough concern that we could be in for a longer rough patch to keep them from rising much. The economy may or may not need or actually be benefiting much at this point from the Federal Reserve’s QE programs, but for some it is comforting to know that the sheriff is on the job, if nothing else. Regardless, the struggle to gain forward traction continues; the Fed is pushing less strongly than it was, even if it has only limited effect, while the unassisted economy continues to stumble along.

The usual first-week-of-the-month cascade of data comes again next week. Mortgage rates are going nowhere fast, so expect more sideways wandering next week of a few basis points in either direction.”

The following are interest rate quotes from American California Financial: