Mortgage Rates May Fall Even Lower

How low can mortgage rates go?

It seems like mortgage interest rates keep falling to new lows, largely thanks to a struggling economy.

The 30-year fixed-rate mortgage fell to 3.56 percent with an average point of 0.7 for the week ending July 12, down from 3.62 percent the previous week, according to Freddie Mac. At the same time, the 15-year fixed-rate mortgage dropped to 2.86 percent with an average 0.7 point, down from 2.89 percent from the previous week. This time last year, the 30-year fixed-rate mortgage averaged 4.51 percent, and the 15-year was at 3.65 percent.

A poor jobs report for June helped decrease long-term Treasury bond yields and mortgage rates. Only 80,000 jobs were created, not enough to make a dent in the 8.2 percent unemployment rate.

Homebuyers and current homeowners, as well as mortgage professionals, are probably wondering if rates can drop even more. Homeowners may be wondering if they should put off their mortgage refinance in a bid to lock into an even lower interest rate.

Wait for Lower Rates?

Home buyers might be thinking about delaying a home purchase for another year a few more months to wait for a better rate. Perhaps they think home prices will go down even more, and they figure they’ll be able to buy a larger, better house if interest rates decline a bit more.

Here are some reasons why mortgage rates could drop even more.

Bond spreads. Mortgage rates are higher than usual when compared to Treasury bonds.

Mortgage rates, typically based on Treasury bond yields, are usually about a 1.7 percentage point higher than the 10-yield Treasury bond yield. But recently the difference between mortgage rates and those bond yields, or the spread, been has more than 2 percentage points higher.

The euro zone. The ongoing euro zone debacle, which shows no signs of ending, could prompt investors to put even more of their money into Treasuries. That would drive both Treasury yields and mortgage rates even lower. European leaders appear to be dedicated to austerity measures that have proven to be a failure.

Drastically slashing public spending and raising taxes in an effort to decrease countries’ debt have decreased government revenues and worsened recessions. Recession in Europe will probably be a drag on the U.S. economy, as Europeans will have less money to buy American goods.

Plus, financial markets will probably continue to fear that break up of the euro zone will create a financial crisis that spreads to this country. Many European banks are highly interconnected with the U.S. financial system, and our fragile economy remains vulnerable in this integrated financial landscape.

Quantitative easing. The Federal Reserve might pursue another round of quantitative easing, a so-called QE 3, in which it purchases large amounts of bonds in an effort to drive down interest rates. Although only a few Fed board members now advocate more easing, other members say they will support it if economic conditions worsen.

The Fed has already extended its Operation Twist – selling short-term bonds and buying long-term bonds in an effort to drive down long-term interest rates – through the end of the year.

China. A slowing Chinese economy could export more economic troubles. The signs of an approaching economic meltdown are clear, notes an article in the journal, Foreign Policy. Chinese businesses are obtaining fewer loans. Interest rates have been cut. Manufacturing output has tanked. Imports are flat, and GDP growth projections are down. Real-world signs, like fire sales of government property, falling pork prices, and wealthy Chinese moving their money overseas, and incidents of social unrest, are evidence of a faltering economy.

Consumers Benefiting from Low Interest Rates

While low home loan rates show the feebleness of the global economic recovery, homeowners benefit by being able to refinance at much lower rates. If home loan rates are not at record lows, they’ll probably stay pretty close. The average 30-year fixed has stayed below 4 percent for 16 weeks, while the average 15-year fixed has remained under 3 percent for seven weeks, according to Freddie Mac.

But then again, anything is possible. It’s possible that the world economy will unexpectedly rebound and euro zone leaders will suddenly agree on a comprehensive solution to their fiscal crisis. Instead of waiting for mortgage rates to drop even more, home buyers and homeowners should lock into a low mortgage rate when it’s in their best financial interest.


Jobs Grow, Unemployment Flat, Fed Acts in a Busy Week

Election results have little effect on markets; Unemployment claims up to 457,000; Fed announces plan to purchase $600 billion in securities; Employers add 151,000 jobs, unemployment rate level at 9.6%

Last week brought more market-affecting news than any in recent weeks. On top of a long-anticipated meeting of the Federal Reserve Open Markets Committee, the week also contained any month’s most significant economic report, the Employment Situation, or Non-Farms Payrolls report. Let’s take a look at the effect these reports have had on mortgage rates.

Monday started the week off weaker for mortgage rates as the ISM services index showed manufacturing was stronger than expected. This sparked a wave of selling in mortgage and other fixed-income securities. Construction spending also exceeded expectations.  These reports were partially offset by a weaker result in personal income and expenditures, which indicated consumers simply had less money available to spend in October.

Tuesday was the quietest day of the week, although mortgage rates fell slightly on no news.

Wednesday was a doozy. Markets opened to a better-than-expected ADP private employment report that showed 43,000 jobs had been added by private employers in October, and suggesting that Friday’s Employment Situation report could exceed estimates, too. Markets also had to absorb the effects of the Republican victory in the House of Representatives, which is believed to be likely to induce gridlock in Washington. This should provide some stability to financial regulations, which have been somewhat volatile of late. Then, at 2:15, the Fed dropped its bombshell: $600 billion in additional security purchases over the next 9 months.

Mortgage rates had opened better on Wednesday, as the election results weighed more heavily than the other data, most of which would normally cause an increase in rates.  Substantial volatility came into play at 2:15 PM when the FOMC announced its decision. Initially, this caused a sharp increase in rates, however, most of that unwound later in the afternoon, and rates closed slightly better than they had opened.

Thursday was a quieter day, as traders digested the Fed announcement, along with Thursday’s higher-than-expected jobless claims. The net result was mortgage rates declined further. Mortgage aggregator Freddie Mac revealed the results of its mortgage rate survey, showing the 30-year fixed rate at an average of 4.24% with 0.8 points, very near record lows.

Friday was another huge day for mortgage rates. The jobs report showed a total of 151,000 jobs added in October, compared to expectations around 73,000. Further, private employers added 159,000 jobs, which is exactly what economists and the Fed have sought as a sign that the right part of the economy is working to relieve unemployment. While an additional 90,000 jobs were added through revisions to prior results, the unemployment rate remained unchanged at 9.6%.

Fixed-income markets sold off on Friday in reaction to this, as the jobs report was seen as a sign that the economy might be on the right track again. At the end of the day, mortgage rates for most situations had increased by about .125%. In spite of this, for the week, mortgage rates improved.

This week, data is substantially more sparse than last. Apart from Wednesday’s initial jobless claims (moved up from Thursday due to the holiday), and Friday’s consumer sentiment, there are few market-influential reports coming. This week’s Treasury auctions will be a strong indicator of the way ahead for rates, though, as how readily that supply of new securities is absorbed will reflect on the strength of the market. Here’s a full list of what to expect:


  • 3-year note auction


  • Retail sales
  • 10-year note auction


  • Weekly unemployment claims – note moved from Thursday due to holiday
  • 30-year bond auction
  • Treasury budget


  • Markets closed for Veterans’ Day


  • Consumer sentiment

Clearly this week will be busier than last week was. If the Treasury auctions are well-received, mortgage pricing should remain stable, however, weaker Treasury results could spell doom for the current low-rate environment. It is beginning to be a bit reckless to float all loans in process; loans less than 30 days to closing should be locked wherever realistic. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

Related articles:

Last Week’s Report

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.

Modest GDP Growth Considered Insufficient to Reduce Unemployment

Economy grows 2.0% in real terms; Unemployment claims dip; Speculation about Wednesday’s Fed announcement continues market domination; Employment data due this week

While last week’s biggest headline was the first reading on 2nd quarter GDP, it was questions, doubt, and confusion about exactly what the Federal Reserve Open Markets Committee will announce at the conclusion of its meeting this Wednesday. The Fed essentially announced the program at its last meeting in September, saying it was prepared to take action if it perceived the economy to be growing at too slow a pace. It also noted concerns about deflation, an economic condition in which the price level of goods an services in the economy decreases over time. This Fed announcement ignited a flurry of buying in bond markets that pushed mortgage rates to all-time lows.

Since then, traders have questioned the size and timing of the Fed’s plan. Will it be $500 billion over 6 months or $1 trillion over 8 months? This uncertainty led last week to significant retreats in mortgage pricing, as traders wondered whether the slightly improved data since the prior meeting might cause the Fed to reconsider its strategy. This resulted in the first ever auction of a Treasury security with a negative yield. The 5-year Treasury Inflation Protected Security yielded -0.55% at last Monday’s sale, indicative of a market that believes future inflation will increase.

Investors in TIPS receive most of their return through periodic principal increases that follow the CPI.

Later in the week, sentiment reversed, after mortgage pricing worsened by as much as 1 point. (Mortgages are priced following two variables – rate and points; when pricing worsens by 1 point, it means that the 4.375% rate that might have been available with 0 points now costs 1 point, for example.) There wasn’t much data between Monday and Friday, although some measures of the housing market suggested that sales had started the slow recovery from August’s abyss.

Friday brought the first look at 3rd quarter GDP. Economists had been expecting to see economic growth on the order of 2.0%, and were not disappointed. This represented a slightly higher growth rate than in the 2nd quarter, when the economy grew by 1.7%, but it is still not a high enough to rapidly decrease the current 9.6% unemployment rate.

And that is why the Fed will act on Wednesday.

Apart from the Fed meeting this week, there are many other significant events happening this week. The week started with a report showing consumers are less likely to open their wallets, followed by another showing that manufacturing is having a better go of it lately, although manufacturers appear to be less inclined to hire more workers. We will get an even better look at employment later this week with the highly influential employment situation report. Here’s a look at some of the most influential reports due this week:


  • no significant data, however, the mid-term elections will be closely watched


  • Election results
  • ADP private payrolls
  • Fed announcement at 2:15


  • Initial Jobless Claims


  • Employment Situation Report (non-farms payrolls)

As you can see, this week is about as market impacting as it possibly could be. At the end of the week, pricing could easily be right back where it started this week, and it could just as easily have moved by a point in either direction. Keep a close eye on this one, folks.

If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

Related articles:

Last Week’s Report

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.

Employment Situation Improves; Mortgage Pricing Turns

Private employers add 67,000 jobs; Service sector growth slows; Manufacturing shows hints of growth; Consumer data suggest turnaround, maybe?

After a week that saw a few comments from Federal Reserve Chair Bernanke move mortgage pricing by 1/2 point in a single day, many mortgage originators and borrowers hoped for a quieter week. This was something of a tall order on a week in which so much employment data was scheduled to be reported. Instead, we experienced one of the most volatile weeks in recent history.

On Monday, mortgage pricing improved almost as much as it had worsened on Friday, and this rise was caused by nothing. Monday was the only day last week that was relatively free of news, its only report, on personal consumption and expenditures, isn’t nearly influential enough to cause a 1/2 point move in mortgage pricing. Bear in mind that mortgage pricing isn’t directly linked to mortgage rates, rather, pricing drives the number of points a borrower will pay to get a particular interest rate. In general, a 1/2 point shift in mortgage pricing will cause mortgage rates to move about .125%.

Rather, the shift on Monday was due to a technical reversal. That is, pricing improved Monday to offset its overreaction to the previous Friday’s news. This is not at all uncommon when there is a large move, like the prior Friday, and more so when pricing has improved as much as it has on the 5-month run we’re currently experiencing.

On Tuesday, we learned that home pricing continued to rise in June, however, that information is at least somewhat delayed, as most of the information in the Case-Schiller survey dates back before a very significant event in home pricing – the end of the home buyer tax credit. Case-Schiller may actually show us something relevant next month when it publishes its July results. That will be the first month in which home sales not influenced by the expiration of that program.  Mortgage pricing improved again on Tuesday, again in disagreement with the available data, again hitting a new record high.

Wednesday was due to be the first day of the three bearing employment data, this time the ADP private employment survey. The survey started last week’s bevy of employment data off on a bad foot, showing that private employers cut a net of 10,000 jobs in August. The ADP survey is a relatively new data point, having started around the turn of the century, and is not viewed as influentially as the other data points that would come later in the week. At the same time, it is seen as indicative of the data to come later in the week.

Considering there is still significance of the ADP report, and its worse-than-expected results, we should have expected mortgage pricing to improve further on the news. It didn’t; rather, mortgage pricing worsened. There is a limit to how much traders will pay for a mortgage-backed security, and we may be approaching that limit.

Thursday brought more news on the economy, this time the weekly survey of unemployment filings. Once again, this showed that all is not perfect in the employment world, however, it didn’t show a worsening in claims, so the result was that mortgage pricing again worsened.

Friday, then, became a make-or-break day for the week, and it was.

At 8:30 AM, we learned that, while the economy had shed 54,000 jobs in August, private employers had added 67,000 positions. The private component to payrolls is viewed as its most important measure at this point in the economic recovery, partly because of the lingering effects of US Census hiring, but more because of the huge extent of the programs the government has already enacted to boost hiring, and because of the huge budget deficit the government is already bearing. 67,000 private jobs added was well beyond most economists expectations, and the news cause stock markets to surge, as hopes rose that there may not be a double dip recession.

In spite of the challenges faced in the latter half of last week, mortgage pricing held levels close to its all-time high, meaning that many borrowers are eligible for 30-year fixed mortgages under 4.5% and 15-year fixed under 4.0%. We did see, though, that there is some weakness to the current pricing rally, which could indicate pricing will begin to worsen more going forward.

In the new Labor-day shortened week, we see substantially less data than in the prior week. Specifically, the following reports and news items are on the way:


  • markets closed


  • 3-year  Treasury note auction


  • 10-year note auction
  • Consumer credit level


  • Weekly unemployment claims
  • Trade balance
  • 30-year bond auction


  • Wholesale trade

This week will be more strongly influenced by Treasury security auctions than by anything else, as we get particular insight into the willingness of traders to absorb the continuing supply of US Government debt. After last week’s volatility, it is too early to expect calm from markets just yet. I suspect that markets will continue to bounce until economic data begins to show some clear direction. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

Related articles:

Last Week’s Report

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.

Bernanke Speaks, and Markets React Strongly

GDP growth revised downwards; Mortgage rates touch new low; Durable goods orders weak; Fed ready to support economy, if it feels the need

For homeowners and mortgage originators Federal Reserve Chairman Ben Bernanke’s words at the Jackson Hole Economic Symposium Friday were a bit unsettling, to say the least. Before we delve into the details of his comments, let’s look at the economic data that caused him to say it.

Several pieces of new information came out this week that point to continued weakness in the economy. The Commerce Department offered its revised estimate of 2nd quarter GDP, showing somewhat weaker than expected growth, principally depressed by a surge in import sales. In calculating GDP, results for other categories of economic activity, like personal spending, business investment, and government spending, are reduced by the effect of imported goods. In the 2nd quarter, the effect of imports was one of the largest in recent years, reducing GDP by 3.7% in the 2nd quarter.

In part, this surge in exports may be due to effects of the sharp drop in value of the Euro compared to the US dollar in the spring of 2010. As European currency saw its value decrease in response to the debt crises faced by Greece, among other countries, the US dollar’s value surged, making European goods much cheaper relative to their US counterparts. Looking forward to the 3rd quarter, it is less likely that this factor will have as much impact.

Meanwhile, though, the bigger factor that worries economists is the employment situation. In the long term, the only way that the economy can sustain growth, is by adding jobs. Every week, we get a peek at one aspect of this situation, the weekly unemployment claims report. Last week, the report showed claims had dipped from the prior week’s 504,000 claims to 473,000. While the decrease was welcomed, the level of unemployment claims is still too high to indicate the strong growth in employment that would reflect solid economic growth. A decrease in weekly claims to 450,000, and, preferably, to 400,000 would be more indicative of that situation.

Mortgage rates once again hit a new record low, with the 30-year fixed mortgage hitting 4.36%. This is the lowest rate on records that go back over 40 years. In spite of the low rates, there are still many homeowners and potential home buyers who are not taking advantage of the opportunity. Some are unable due decreases in home values, others due to tighter underwriting standards, and still others because of concerns about jobs. There are special opportunities to help those whose values have declined, including allowing refinancing up to 125% of the homes value. Until the employment situation and underwriting ease, it is likely the other groups will remain on the sidelines.

Speaking of employment, there is no shortage of economic news regarding that category this week. Because the 1st Friday in September is this Friday, we will get the monthly employment situation report, among many others. Here’s the full calendar:


  • Personal Income and Outlays


  • Consumer Confidence
  • FOMC Minutes
  • Case-Schiller Housing Price Index


  • ISM Manufacturing Index
  • ADP Employment Report
  • Construction Spending


  • Weekly Unemployment Claims
  • Pending Home Sales
  • Factory Orders


  • Employment Situation Report

Of these reports, the data coming Wednesday, Thursday, and Friday is by far the most influential to mortgage rates. With the volume of data, there could be some sharp moves in either direction, as traders react to the results of the employment picture.

How does this reflect on Fed Chair Bernanke’s comments last Friday? I believe that markets overreacted to his comments Friday, for two reasons: first, markets were seeking any sign at all that stocks shouldn’t continue to sink, and they got it, pushing most markets up over 1.5%, and dialing up treasury yields by 15 basis points; second, because we were still in the tail end of summer on Friday, there were still a large number of traders on the sidelines. Ultimately, mortgage pricing will worsen, but not given the current poor data available. If stronger data comes along this week, there could be a meaningful worsening of prices, but all signs point to weak additions to private payrolls, which should keep mortgage pricing high for an extended period.

Last week, we opened with news about poor performance of the Japanese economy compared to competitors. Today, Japan has taken action to shore up its position, announcing it would take more action to lower interest rates, and . Will it work? Only time can tell, but I do hope the Federal Reserve will learn from Japan’s recent history, and will help us avoid the same fate. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

Related articles:

Last Week’s Report

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.

Economic Recovery Slowing, When Will Jobs Growth Start?

GDP growth shrinks to 2.4%; Bright spots: New home sales, 4.54% 30-year fixed mortgage; Challenges: Durable goods orders, Consumer confidence; Jobs to define coming week

The headline everyone will remember from last week is the disappointing 2nd quarter Gross Domestic Product result announced Friday, showing a 2.4% annualized growth rate. This marked a decline form an upwardly revised 3.7% growth in the 1st quarter, and missed analyst expectations. Earlier this month, analysts had predicted that growth might hit 4.5%, but poor results from recent consumer confidence and unemployment claims surveys forced them to lower those predictions. Ultimately those estimates had been lowered to 2.5%, so the 2.4% result wasn’t as much of a surprise.

New home construction showed better results than expected, in spite of a sharp drop in new home sales in May. While sales turned around in June, the level is still around half the average over most of the last 30 years. One factor that may add support to home sales in the 3rd quarter is historically low mortgage rates. According to Freddie Mac, the 30-year fixed rate mortgage averaged 4.54% in the latest week, a new record low level in the history of that survey. Mortgage rates have been helped recently by weak economic news, and it’s likely that these low levels will continue for some time.

Day-to-day fluctuations in mortgage rates are driven by changes in pricing of mortgage-backed securities, which are in turn influenced by economic data, and affected by fluctuations in stock market and Treasury pricing. Long term trends in mortgage rates are more affected by Federal Reserve monetary policy and market expectations of that policy. The Fed uses monetary policy as a means to control the amount of money in the economy, and the primary tool of monetary policy is the Fed funds rate. The Fed funds rate is a target rate set by the Federal Reserve Open Market Committee, and then implemented through open markets operations of the Fed, in which the Fed buys or sells Treasury securities so that the desired interest rate will be achieved. At any given time, the Fed holds close to $1 trillion in Treasury securities for this purpose.

At present, the Fed funds rate, a target interest rate for short term loans between banks, has been stuck at the ultra-low level of 0.00 to 0.25% since December of 2008. The FOMC meets every six weeks to determine its next step, with the next meeting scheduled for August 10th. At more recent Fed meetings, the consensus has grown darker, and even the more hawkish members of the committee, those who had been most adamant about increasing interest rates to stave off inflation, have softened their stances. Market consensus currently suggests a belief that the FOMC will not raise the Fed funds rate until sometime in the 1st or 2nd quarter of 2011. This is why recent negative economic news has allowed markets to allow data to pull mortgage rates lower.

Specifically, last week, we saw news about two important components of the economy.

Durable goods orders were reported, showing a decline of 1% in June. Economists had been expecting an increase of 1%, however, I believe their estimates were incorrectly based on recent order information from aircraft manufacturer Boeing, one of the biggest US makers of durable goods. It’s not that Boeing isn’t bringing in the orders. They are. The problem with the data is the timing of those orders. Boeing recently received a bevy of orders at the Farnborough Airshow, however, that show took place in July, meaning that those orders would have no impact on June’s Durable Goods orders.  I suspect that July will show a significant “rebound” in durables orders because of this.

Also, consumer confidence and consumer sentiment reports recently have taken some wind from markets sails. Consumer spending represents between 65-70% of overall GDP, and lately, consumers haven’t been spending. Consumer sentiment on all available reports has fallen over the last few months, meaning that consumers are keeping a very tight reign on their wallets.

Why are consumers worried? In a word: Jobs. Consumers are not seeing any improvement in the availability of work in the US, which is currently saddled with 9.5% unemployment, and further workers who have given up on finding a job. 300,000 or 400,000 Americans run out of unemployment benefits each week without finding work, hence why consumers are afraid to spend.

We’ll find out exactly where the employment market stands this week, with three important reports on Jobs. On Wednesday, payroll company ADP brings the results of its monthly private employment survey for July. On Thursday, we’ll learn how many filed for unemployment benefits in the past week. Finally, Friday, we’ll get what is often the most interest-rate-influential economic report of the month, the Bureau of Labor Statistics’ Payrolls and Unemployment Rate surveys. In addition, there are other important reports:


  • Construction spending
  • Manufacturing data


  • Personal income and spending
  • Pending home sales


  • ADP employment


  • Unemployment claims


  • Unemployment rate
  • Jobs report

There is some risk to floating loans at the moment, especially if we get an unexpected positive surprise in employment later this week. On the flip side of this, though, is the slew of recent marginal data in this area. It just doesn’t look like employers added that many jobs last month, based on the negative consumer sentiment and the high degree of unemployment claims filed. There are substantial rewards to floating, in that recent data suggests the economy may not have hit bottom yet, and that could lead to even lower interest rates.

If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655. Have a great week!

Related articles:

Last Week’s Report

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.