Mortgage rates inching up despite economy

September 17th, 2010

In the short term bad economic news is good news for you if you are shopping for lower mortgage rates. This past week economic data was not good, not real bad, but not helpful to mortgage rates that inched higher for the second week in a row. Using mortgage calculators to help plan your new home loan or refinance mortgage transaction, and using economic news and analysis is helpful in determine when you might want to execute that new home purchase or refinance your mortgage. Here is a look at the past week in the economy.

Mortgage applications down

For the second week in a row the Mortgage Bankers Association reported declining mortgage applications in its Weekly Mortgage Applications Survey. Busy refinance calculators the past few months saw refinance applications climb as high as 89 percent of total mortgage application volume. The MBA survey released on Wednesday showed refinance applications for the week ended Sep. 10 down 10.8 percent from the week before.

With the recent drop in refinance applications and only a slight decrease of 0.4 percent in purchase applications, refinances are at 80 percent of total application volume. Overall the survey, adjusted for the Labor Day holiday, reported total applications down 8.9 percent from the prior week. Of note in the survey is the almost 40 percent decline in purchase applications from the same week in 2009.

Rates up another little bit

Freddie Mac released its Primary Mortgage Market Survey that tracked interest rates for the week ending Sep. 16 and for the second week in a row there was a slight increase in the 30-year fixed-rate mortgage. Freddie Mac reported the rate at 4.37 percent from 4.35 percent one week prior (and 4.32 percent the week before that).

These slight increases have a very minimal impact on your monthly mortgage payment, but after showing now increases for almost three months it is interesting to have back-to-back weeks of increases. A trend? Shouldn’t be according to the economic data for the past few months.

A big yawn

That is what the economy is doing. Is it the yawn one takes when stretching and waking from a deep slumber? Or the yawn one takes before going back to sleep? Two major inflation/price indexes were released this week, PPI and CPI. The Producer Price Index measures prices paid by wholesalers and manufacturers; the Core Price Index increased only 0.1 percent in August.

Generally low price increases are good news as they indicate the absence of inflation. But the PPI anemic growth combined with an even lower core increase of below 0.1 percent in the Consumer Price Index (CPI) shows an economy on the brink of going back to sleep. Several economists are now warning that with prices continuing to show almost no growth reflect an economy in danger of experiencing deflation.

Deflation and the Fed

Deflation is the contraction of prices in the economy, the opposite of inflation. How to fight deflation and spur economic growth? Not with more rate cuts since the Fed has short term rates at or just above zero. Buy more debt? The Fed already owns over $1.3 trillion in mortgage and U.S. Treasury debt. Perhaps it is time for the politicians and bankers to quit looking to the Fed to revive the economy with monetary policy and see some fiscal policy out of Congress to encourage business spending and credit extension. Tax cuts anyone?

Looking ahead to next week the Fed will have a policy meeting and it will be interesting to see how they plan to deal with an economy that has napped through the summer and appears ready for a deep slumber through the fall and into winter. With September consumer sentiment falling to its lowest level since August 2009 the Fed and Washington will need to provide some guidance and a plan that instills confidence in the American consumer that fuels our economy and economic growth.

As you use the free on-line mortgage calculators do so with the expectation of perhaps minor fluctuations in mortgage rates but a continued low mortgage rate environment for the near future.

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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