Interest rates move down slightly this week

Interest rates for buying a home on the Palos Verdes Peninsula stayed steady this week but the rate of increases is slowing and may decline slightly next week. The following are excerpts from the newsletter on interest rates published by HSH Associates :

"Global investors found reasons to shift cash to the safety and security (not to mention comparatively high yields) of U.S. government-backed debt this week, driving yields down and dragging mortgage rates along with them. The decline in the conforming 30-year FRM reported by Freddie Mac wasn't the first decline this year, but was the first meaningful fall as it totaled ten basis points.

Political instability in Italy was the proximate cause of investor concern, sparking fears that a new debt crisis ala the one back in 2011 and 2012 might soon follow and that the Eurozone's third largest economy might quit the currency, destabilizing it. By week's end, a coalition government had formed and any imminent crisis averted, but observers note that plenty of risks and more potential upset remain ahead. One outcome of this episode is that the European Central Bank may reconsider a hoped-for near-term exit to its stimulus program.

As well, concerns over a trade war have flared anew, with the Trump administration revving up new tariffs on steel and aluminum goods coming from key U.S. allies in addition to those already announced on certain Chinese goods and commodities. New duties on automobiles and auto parts are also being considered and it would seem that all major trade agreements are being disturbed to varying degrees, and that foreign governments may retaliate risks both new inflation pressure and slower global growth. Oil prices also continued to settle back from recent highs, trimming some inflation concerns and also helping yields to retreat in recent days.

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Even if it sticks around, this week's small decline in rates isn't enough to spur more home sales or kick refinancing activity higher, and there's little reason to think it will stick around for long. Solid economic data give the Fed plenty of reason to stick to their plan of raising rates gradually, with the next increase just around the corner. Given signs of a rebound in growth during the second quarter (currently reckoned at 4.8%, but probably closer to 3.5% than not) there is no reason for the Fed to hold fire, and a very good likelihood that member projections will reveal that September and December moves by the Fed are strongly in play. If this is the case, this week's dip in rates will be a short-lived one.

But can they hold or even decline again next week? We'd love to say "sure", but the available evidence suggests that with the market-panic fading so is the downward pressure for mortgage rates. The 10-year Treasury yield finished the week almost exactly where it started and has been rising since Wednesday and mortgage rates have followed, even if not yet reflected. We thought we'd see a five basis point decline or so this week and got 10; we think that half of this week's decline -- the half we didn't account for, if you will -- will disappear next week, with a five-basis point recovery rise on tap for the conforming 30-year FRM when Freddie Mac reports next Thursday."

The following are interest rate quotes from John Alvin of American California Financial: