Mortgage rates await clearer economic signals

August 21st, 2013

After a sharp rise earlier this year, mortgage rates have leveled off over the past five weeks. This may not be stability so much as an absence of economic clarity; but in the meantime, it does make things a little easier on mortgage shoppers.

Giving mortgage shoppers a break

According to figures from Freddie Mac, 30-year mortgage rates have been within a range of less than 10 basis points over the past five weeks. That makes things easier on mortgage shoppers. When rates are moving quickly, shoppers barely have time to digest one set of figures from a mortgage calculator before one of the variables has changed. Over the past five weeks though, mortgage shoppers have had time to actually act on the information their loan calculators have given them.

Since this leveling of mortgage rates is based on uncertainty rather than actual stability, the only question is: How long will it last?

The waiting game

The way mortgage rates have moved up and down within a limited range lately can be likened to someone pacing back and forth in a waiting room. It's not that they aren't ready to go somewhere, it's just they don't yet know which way to turn. Here are some of the questions waiting to be resolved:

  1. Will the economy show strength or weakness next? Both GDP and employment figures have teased by showing progress, only to quickly deliver a new disappointment. Thus, the outlook for growth remains as uncertain as it has been throughout the past four years.
  2. What will the Fed do -- and when? At this point, everybody knows that the Fed will start to back off from its stimulus measures at some point. However, until their policy actually changes, mortgage rates won't really know how to respond.
  3. Is inflation going to be a problem? In June, consumer prices rose by 0.5 percent and producer prices by 0.8 percent. Inflation rates like those could force interest rates higher even in a slow economy. This week though, the Bureau of Labor Statistics announced that consumer prices were up by a mild 0.2 percent in July and producer prices were unchanged, leaving the inflation trend uncertain.

The leveling off of mortgage rates shows that uncertainty can have its benefits -- even if they are only temporary.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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