Big news: mortgage rates halt increase

December 24th, 2010

After over a month of continually rising rates that pushed mortgage rates to six month highs, new home loans and refinance mortgage applicants saw slightly lower rates this past week. What is ahead for mortgage rates? Here is a brief look at the recent week in economic news that affects mortgage rates for those using mortgage calculators to plan new home loans and mortgage refinances.

Positive consumer data

The Commerce Department released data on income, spending and prices for November 2010 and the news was not bad. Personal income in November was 0.3 percent higher than the prior month and consumers took their higher paychecks to the stores as consumer spending increased 0.4 percent over October. The increase in spending by consumers has been big news for many waiting for the American consumer to awaken from an almost three-year slumber and start buying.

Increased spending the past few months by consumers has not had an impact on prices however as the Commerce Department announced the core rate of inflation for November matched the record low set in October at only 0.8 percent year-over-year. The 0.8-percent inflation rate is the lowest since the Commerce Department began tracking the data in 1960.

Low inflation rates are very good for consumers and wage earners as it keeps the costs of goods down as you provide for your family. Low inflation rates are generally good for bond holders and buyers as well, since the return on investment is less eroded by inflation. Users of refinance calculators typically benefit from low inflation rates which tend to translate into low, or lower mortgage rates. The recent inflation data provides support to the Federal Reserve's November 2010 asset purchasing program, known as QE2, to keep rates low through the second quarter of 2011.

Mortgage rates

Despite the low inflation rates and the Fed's QE2 program to maintain low interest rates in the economy to stimulate higher inflation rates, mortgage rates have climbed from their lows in early November to six month highs in December 2010. This past week however the increases slightly reversed themselves as the Freddie Mac benchmark 30-year fixed rate at 0.7 origination points declined 0.2 percent to 4.81 percent in the Weekly Primary Market Survey released on Dec. 23, 2010.

Rates have been climbing on investor fears of inflation exceeding Fed targets as the QE2 program pumped almost $1 trillion into the economy between November 2010 and June 2011 combined with growing U.S. Treasury deficits and borrowing.

Economic reports the past few months have continued to show a sluggish economy growing at a very slow pace, news that would historically lead to lower or continued rock-bottom rates. Positive economic news such as increased personal income and consumption, and even reduction in job losses, have shown an economy growing but not fast enough to sustain job growth nor avoid a possible recessionary relapse.

Holiday happenings

Between slow end-of-year holiday trading in the stock and bond markets, the fiscal policies recently passed that averted another multi-trillion dollar federal spending program and economic data showing that significant inflation is far off on the economic horizon, this week investors bought mortgage backed securities and ceased, at least temporarily, raising mortgage rates.

During the period between Christmas week and the first week of the new year, trading that impacts mortgage rates is usually very light, which can result in big swings in rates on a daily basis. Avoid risk of a higher mortgage rate by locking in when you can if closing in the next few weeks on your transaction; if you are a bit of a risk taker, patience into the middle of January 2011 may pay off with slightly lower rates as economic data shows investors that lower rates are justified.

Your goals for 2011 may be to purchase a new home, refinance your existing mortgage or consolidate debt. You can plan for any of these goals by using mortgage calculators as part of your planning. Also use the information available to you on the website where every Friday updates on economic news impacting mortgage rates are posted.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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