Defying Consensus Estimates

We, along with most everyone else , believe interest rates will rise in 2014. If you were to ask most mortgage bankers where the rate on the 30-year fixed-rate loan will be on Dec. 31, 2014, you'll likely get a response of 5% or above.

To be sure, the year is still young, but mortgage rates have defied the majority opinion by trending down, not up. This past week, rates were either steady or slightly down across the board.'s weekly survey shows an average rate of 4.56% on the 30-year loan. Freddie Mac's survey shows the 30-year loan averaging 4.39%, two basis points lower than last week.

Depending on your local market, the rate on the 30-year loan has dropped from 10-to-15 basis points in this new year. Rates have dropped despite the Federal Reserve announcing it was reducing its purchases of mortgage-backed securities.

We're not terribly surprised mortgage rates have been falling. At the beginning of the year, the 10-year U.S. Treasury note was yielding above 3%. As we write, the yield is below 2.8%. (To get a rough idea of where the 30-year fixed-rate mortgage is headed, follow the yield on the 10-year Treasury note, which you can readily find at most financial portals .)

The upside of lower mortgage rates has been an uptick in both refinance and purchase application activity. The Mortgage Bankers Association 's latest survey shows refinance applications were up 10% last week, while purchase applications were up 2%.

The downside is that lower rates have come tethered to lower job growth. We mentioned last week that we were sorely disappointed in the December payroll numbers. Job growth for the month was far below expectations.

Later next week, we'll get an idea if December's employment numbers were simply an anomaly that's unrelated to the economy. Preliminary data point to gross domestic product (GDP) growing 3% on an annualized rate for the fourth quarter of 2013. Let's hope that growth is moving ahead at least that much. If growth meets or beats exceptions, December's weak job numbers will likely have been a one-off aberration, and not the start of a new trend.

The Federal Reserve will also influence interest rates this coming week. Fed officials are scheduled to convene on Tuesday. On Wednesday, we'll be privy to what they discussed. Most likely, we'll hear that the Fed still supports holding interest rates low into the distant future. But for the immediate future, rates could still rise or fall depending on the Fed's outlook on the economy.

The bottom line is that we expect to see some volatility in mortgage rates over the coming week, with most of it occurring on Wednesday and Thursday.

Courtesy of Jessica Regan.

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