Friday was the bellwether day for mortgage rates last week, with mortgage-backed securities on the rise (and significantly so) at a half a point higher for the day.
In lending circles, stronger performance for mortgage-backed securities means better balance sheets for bankers and lenders, and ultimately lower, more competitive mortgage rates for borrowers.
That’s why Friday was a good day – it saved what could have been a lousy week for home mortgage borrowers. And it should provide some downward momentum for rates heading into the first few days of August.
For the week, rates on 30-year-fixed rate mortgages rose a few basis points, from 5.37% to 5.44%. But rates on 15-year mortgages actually fell, from 4.89% to 4.86% for the week. Adjustable rate mortgages of the three- and five-year varieties, fell from 4.86% to 4.81%, and from 4.84% to 4.75%, respectively.
Perhaps mortgage rates took a cue from larger economic forces that could spell relief from the two-year-old recession. First and foremost, the Federal Reserve readjusted the Gross Domestic Product numbers for the fourth quarter of 2007 to the fourth quarter of 2008. Instead of the original estimate of -0.8%, the Fed recalibrated, coming up with a number twice as bad, now -1.9%.
But there’s some better, fresher news on the GDP front. For the second quarter of 2009, the Fed estimates that the economy slowed at a pace that was much slower than most economists had anticipated. That could set the stage for growth in quarters three and four in 2009, a prospect that put a spring in the step of stock market investors, who went into a buying mode after the GDP report came out, pushing up stock prices late last week.
How would an economic bottom impact mortgage rates? It’s an interesting question. Economists seem to agree that growth in the aftermath of the recession would be incremental, as traditional key post-recession drivers like unemployment and consumer spending keep rising even as the economy improves.
That should keep mortgage rates in check for a while, but after that, if the economy really starts to improve, the Federal Reserve will almost certainly raise interest rates to keep inflation in check and to provide some ballast for the weakened U.S. Treasury market. Then, as home values rise, mortgage rates should follow.
But all that’s down the road – most likely in 2010. For now, see if you can’t lock in those floater rates at 5.25% for that new mortgage. It might be the best deal we see in a while.
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