Tag: Interest Rates

Weekly Economic Summary – Feb 29, 2012

There was good news on Friday as Consumer Sentiment rose to 75.3, which is the best level since February of 2011. However, this news was tempered by the rise in oil prices.

On the one hand, high oil prices can be detrimental to the fragile U.S. economy, as consumers have to put more of their discretionary dollars into their gas tanks.  High oil prices are also inflationary as the added shipping and material costs apply upward price pressures on producer or wholesale goods. The upward prices either have to be absorbed by the producer, thus hurting profits and the ability to expand or hire; or the added costs get passed onto the consumer.

The silver lining is that the dampening effect on economic growth produces a sluggish economic environment in which bonds (including mortgage bonds, to which home loan rates are tied) thrive. This is an important topic to continue watching in the weeks and months ahead.

Last week, investors and central bankers came to an agreement to provide Greece with 130 billion Euros ($172 Billion) in financial aid. This will help the country fund itself through March and into the future, as long as it institutes economic reform, austerity measures and meets deficit targets.

Between some of the overseas uncertainty being lifted, a lower unemployment rate, and better than expected economic reports, home loan rates have struggled to improve beyond levels seen over the past two weeks.

Weekly Economic Summary – Feb 22, 2012

Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. The Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 — the lowest level since March 2008. Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.

Remember, strong economic news often causes money to flow out of bonds and into stocks, as investors hope to take advantage of gains. That’s partly what caused bonds (including mortgage bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on bonds and home loan rates was the news that inflation is heating up. Despite the Fed’s claim that inflation is moderating, the Core Consumer Price Index (CPI), which excludes high volatility items such as food and energy, rose to its highest levels since October 2008. The Core Producer Price Index (PPI), which is an indicator for wholesale inflation, rose double the expectations of 0.2%, coming in at 0.4%.

Last week’s uncertainty in Greece was another key factor, as it also impacted bonds and home loan rates. Eurozone finance ministers completed a deal early this week that will provide Greece with the funding it needs to avoid default next month. U.S. bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our bond market as a safe haven for their money. While Greece’s uncertainty seems to have resolved, time will tell whether this safe haven trading will continue in the face of other European countries’ economic uncertainty.

Mortgage Rates Hit New Record Lows

A 30-year fixed-rate mortgage averaged 3.91 percent in the week ending Dec. 22, down from 3.94 percent last week, setting a new all-time low for 30-year mortgages. “Rates on 30-year fixed mortgages have been at or below 4 percent for the last eight weeks and now are almost 0.9 percentage points below where they were at the beginning of the year,” said Freddie Mac Chief Economist Frank Nothaft. The greater affordability provided by lower rates helped push existing home sales higher in November for a second consecutive month to an annualized pace of 4.42 million, the most since January.

Mortgage Rates in an Uptrend

Mortgage rates continued to trend higher this week, according to Freddie Mac, which reported this week that the average rate on a 30-year fixed-rate loan was 5.03%, up from 5% a week earlier and from an all-time low of 4.87% in the week ending Oct 8th.

Rates on shorter-term fixed-rate mortgages and adjustable-rate loans also rose. For 15-year fixed-rate loans, often used by borrowers seeking to pay off their mortgages faster, the rate this week averaged 4.46% with 0.6% of the balance paid in lender fees and points, up from 4.43% with similar upfront costs last week. For the full year, 30-year fixed rates have averaged just below 5% thanks to intervention by the government, triggering a refinancing boom. Seven of every 10 mortgages this year have been refinancings.

This means that you still have a great opportunity to refinance your current home or even look for depressed properties which could present a great opportunity to buy something that will definitely be worth a lot more in a few years.

As always, I am available to help you look for a new home or to refinance your current home. To check out my listings, click here or you can Contact me.