Interest Rates Inch Up this Week

Interest rates inched up this week from historical lows.The following are excerpts from the newsletter on interest rates published by HSH Associates :

"As expected, the decline in mortgage rates leveled off this week. Months of sour economic news followed by new Fed assistance drove rates to record lows on a regular basis throughout much of the Summer. The data which characterizes the economy has turned a just bit warmer in recent weeks, and rates have stopped falling, for at least the moment.

There's nothing to suggest that any outbreak of growth is ready to occur, but the downturn of the Spring which produced 1.25% GDP growth in the second quarter does appear to have given way to something stronger than that in the third quarter, where we might be running closer to 2% GDP than not. As July and August were economically lukewarm, most of the mild acceleration seems to have come in September, but nothing strong enough as to push interest rates upward by much. Overall, it's more a case of an absence of bad news than a wide-ranging spate of good news, but there are bright spots to be seen.

In the face of warmer economic news, can mortgage rates resume their decline? Certainly, it's possible, but this will depend to some degree upon the Fed's aggressiveness in snapping up new securities; more likely it would take a falloff in demand for mortgage credit for that to occur. Lenders are busy at the moment, and don't need to push lower rates into the market to attract new business, and least some lenders are probably busy enough as to not want any new business, since they cannot adequately handle any increase in demand. This is arguably true for other folks in the system, too, including inspectors, appraisers and the like.

We'll get some additional sense of any economic acceleration next week, especially from the housing sector. An October report from the homebuilders trade group is followed by September housing starts, then existing home sales for September. We'll also get a look at Retail Sales, the aforementioned CPI and Leading Economic Indicators. We're of the mind that the collective tenor of the data will be firm to slightly warmer, as much of the September and early October data have seemed to be, and that mortgage rates may firm up by a couple of basis points by the time the week is out"

The following are interest rate quotes from Al Hermann of American California Financial: