May 31, 2007
Rate Watch- Mortgage rates rose again this week on strong economic growth outside of the housing market. The average rate on 30-year fixed-rate loans climbed to 6.41% for the week ending May 31, up from 6.37% the previous week. Last year at this time, 30-year mortgage rates averaged 6.67%. The rate on 15-year loans averaged 6.12%, up from 6.06% the previous week.
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Why are rates increasing at the present time? This past week rates moved to their highest levels of the year.
A few possible explanations for rates moving up include:
· The markets are now anticipating that the economy will rebound in the second half of the year. Certainly higher numbers for consumer confidence, durable goods and new home sales are helping to fuel that speculation. The numbers for existing home sales depict a real estate market that will be a drag on the economy for the next several months.
· Gas prices keep rising and high energy prices are keeping the markets convinced that the Fed will not lower rates this year because of the threat of inflation.
One reason that the short-term rates have been equal to or higher than long-term rates for most of the past year (known as a flat or inverted yield curve) is that the markets have been anticipating that the Fed would eventually lower rates. Well, the markets may be tired of waiting and watching no action as we are coming to the one-year anniversary of the Fed's last rate increase.
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According to David Seiders, chief economist of the National Association of Home Builders, the new home market may not return to normal until 2011. He said it will be three or four years before the oversupply of finished but unsold houses is worked off and housing starts move back up to the 1.8-1.9 million-units-a-year trend line.
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Rising rates, among other factors, have caused the Mortgage Bankers Association (MBA) and NAR to push back their forecasts for a home-price recovery. Both groups are now looking to early 2008, compared with a previous outlook for mid-2007.
Mortgage rates are based on the yields of 10-year Treasury notes, which have also risen substantially this month, as strong global stock market returns have lured investors away from bonds, lowering their prices.
As mortgage rates rise, they add to the size of a borrower's monthly mortgage payment. Rates had been at 6.16% as recently as May 3. The 0.26% increase since then represents a jump of $30 a month on a $200,000 loan.
Doug Duncan, chief economist for the MBA, expects rates to top out near 7% by the end of the year.
Remember, the worse the housing market gets, the more likely the Fed will begin aggressively cutting rates.
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From USA Today: Chinese citizens opened +160,000 new investment accounts each day last month (i.e., 4.8 million new accounts for the month) in an effort to participate in their rising stock market.
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600 days from today-The next President of the U.S. (#44) will take office on 1/20/09 or 600 days from today.
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Disclaimer:The information contained in this newsletter has been gleaned from various sources and is intended to be current and accurate, however we cannot and do not warrant or guarantee as such. This newsletter is for informational purposes only and is not intended to be, nor should be considered as, investment advice. It does not take into consideration the financial circumstances, needs or investment objectives of any specific person who may receive this newsletter. Individuals should seek financial advice with regard to specific circumstances before making any investment decision.
©Copyright 2007 Ann Arbor Mortgage Company, LLC
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