The Home Buyer's Korner

Information presented should be used for educational purposes only.

May 12th, 2014

What Home Buyers Need to Know for the Week of May 12, 2014

Guy looking up in colorMortgage rates continued to move south last week and against Wall Street’s expectations. For the fourth time in five weeks rates for the 30-year fixed rate mortgage rate have dropped, lowering the benchmark rate to its cheapest point in six months. Some mortgage lenders are quoting rates in the high 3% range.

According to Freddie Mac’s weekly survey of more than 100 mortgage lenders the average 30-year conventional fixed rate mortgage fell 0.08 percentage points to 4.21% last week; marking last week the largest one-week drop in rates in more than two months. Furthermore, last week rates were the lowest since November of last year and mortgage interest rates are down by nearly one-half percent since January 1. 15-year fixed rate mortgage rates also dropped last week. On average, 15-year conventional fixed-rate mortgage rates dropped 0.06 percentage points nationwide, falling to 3.32% and also marking it as a two-month low.

Mortgage rates have been on steady decline since the New Year and against analysts’ expectation. On January 1, the 30-year fixed was above four-and-a-half percent and the talk then was rates were heading to 5%.  Since then rates have been dropping considerably.

As the U.S. economy recovers for the great recession jobs growth continues to lag and helping to contribute to lower home mortgage rates. Additionally, inflation remains in check. Inflation erodes the value of dollar-denominated assets, a class which includes mortgage-backed bonds. When inflation rates rise, demand for mortgage bonds sink which causes prices to drop and rates to move higher. In the absence of inflation, the opposite occurs; demand for bonds increases and mortgage rates sink. Today’s inflation rates are well below what the Fed has deemed “optimal” and also helping to hold mortgage rates down.

What’s Ahead for the Week?

Continue to keep a close eye on the escalation between Russia and Ukraine. The threat of war or regional conflict often helps to lower U.S. mortgage rates. This is because investors seek “safe” assets during periods of uncertainty and US Mortgage-Backed Securities are among the safest in the world. The week’s complete economic calendar includes a speech today from Philly Fed President Charles Plosser. Tuesday we’ll hear from Richmond’s Fed President Jeffrey Lacker.  We’ll also be getting current reports on Retail Sales. Wednesday we see the Homebuilder Confidence Survey and the Producer Price Index. Thursday New York Fed President William Dudley speaks.  We’ll also be getting reports on Consumer Price Index and the Philadelphia Fed Survey. Friday ends the week with Housing Starts and St. Louis Fed President James Bullard speaks.

As you can see if you have been following our blog we’re seeing a larger than normal number of scheduled speeches from members of the Federal Reserve. Wall Street will carefully parse Fed speeches for clues about future monetary policy and what way home mortgage rates may go.Google+