The Trend Finally Ends

The run of lower lending rates has come to an end, at least for the time being.

Mortgage rates across most offerings and jurisdictions rose this past week.'s survey showed an average rate of 4.48% on the 30-year fixed-rate loan, five-basis points higher than the previous week. As to be expected, Freddie Mac's survey also showed a rise. It's data show the 30-year loan averaged 4.28%, which is also a five-basis-point increase. (The surveys differ because of methodology and average discount and origination points.)

Market participants point to two factors in the turnaround in rates: New Federal Reserve chair Janet Yellen and an encouraging economic report from China.

On the former, Janet Yellen reassured Congress this week that the economy continues to grow despite some softness. This means the Fed is unlikely to back away from tapering its purchases of mortgage-backed securities (MBS) and U.S. Treasury notes and bonds.

Over the past two months, the Fed has reduced its purchases by $10 billion each month. The Fed is expected to continue along this measured path – reducing purchases $10 billion each month – until it ceases. As we've noted frequently in the past, these note and bond purchases have helped keep mortgage rates low.

On the latter, China excited financial markets with an upbeat export report, which eased concerns of a possible global recession. This inspired investors to cycle out of haven investments – like Treasury notes and bonds and MBS – and cycle into riskier investments, like stocks. Money leaving the haven investments puts upward pressure on mortgage rates.  

For anyone concerned that rates will establish a new trend – up – we see little reason to worry. Five percent on the 30-year loan is still unlikely for the foreseeable future.

Despite the Fed chair chatting up the economy, things still aren't all that great. The employment numbers for January were particularly disappointing. The economy added 113,000 new jobs for the month, but this was far below the 180,000 many economists were expecting. Job growth remains stubbornly sluggish.

Interestingly, the unemployment rate actually fell to 6.6%, even though the participation rate increased slightly to 63%. Lower-than-expected job growth coupled with a higher participation rate would lead you to believe the unemployment rate would have at least remained constant, if not risen. Instead it fell, which is bit confusing to say the least.

The outlook for gross domestic product (GDP) growth is also vague. Some Fed officials still expect GDP to grow at a 3% rate this year. The private sector is a little more circumspect. The Wall Street bank Goldman Sachs has lowered its first quarter 2014 GDP estimate to 1.9% from 2.3% on an annualized rate. Anything below 3% is nothing to cheer about.

In short, there is no clear beacon to where the economy is headed. This leads us to believe that borrowers should still act to lock in today's low rates, but they've got some time to do so.

Courtesy of Jessica Regan.

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