Interest rates move up

Interest rates for buying a home on the Palos Verdes Peninsula moved up a bit this week . The following are excerpts from the newsletter on interest rates published by HSH Associates :

"Bond markets exhibited a little bit of nervousness this week, and as is often the case, mortgage rates are firming as a result. The ongoing accumulation of solid economic news both ere and abroad plus some new concerns about inflation were enough to unsettle investors who have come to enjoy the reliability of low inflation and global central bank support.

There continue to be signals that the long run for extraordinary quantitative easing is coming to an end soon. The U.S. has already started down a path of undoing its programs, and in fact is accelerating the process this month. 

The influential yield on the 10-year U.S. Treasury moved above decisively above the 2.5 percent mark and ran close to 2.6 percent for a time before settling back a little as the week came to a close, but the latest bump in yields should be sufficient to push conforming 30-year FRMs over the 4 percent mark for the first time since last July.

It bears noting that mortgage rates would have already cracked the 4 percent mark, but the "spread" over the 10-year Treasury has shrunk notably since a near-term mortgage rates bottom last September. Since then, the 10-year TCM has risen from a weekly average of 2.07 percent to about 2.5 in the latest week, a rise of 43 basis points. The average conforming 30-year FRM reported by Freddie Mac moved up less than half this, rising 21 basis points from 3.78 percent in September to 3.99 percent this week. Spreads have shrunk from 171 basis points to just 149, about a dozen fewer than is typically seen, so not all of the increase in yields is being passed along to mortgage borrowers. Most likely, this is due to pricing competition among lenders trying to keep volumes up as refinancing activity dwindles due to higher rates. However, as will all things, there are limits, and we may be at or close to them, so any lift in yields becomes more likely to be passed along to borrowers

We were bound to see 30-year mortgage rates trek over the four percent line at some point, and it appears that we have reached that point. Be prepared for "mortgage rates at highest point since July"-type headlines next week, as we think we'll see a five or six basis point increase in the averages Freddie Mac will report. In the excitement, it's a good idea to keep in mind that rates were above 4 percent for fully 20 weeks of 2017, so it's not like we're entering uncharted waters."

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