Mortgage rates rise for third straight week

February 04th, 2011

In spite of rising tensions in Egypt and elsewhere, it appears foreign affairs had little impact on mortgage rates this week. New home loan and mortgage refinance applicants are continuing to see higher mortgage rates. Important economic data this week is seemingly contradictory and of little help to mortgage calculator users trying to discern which direction mortgage rates will head.

Rates up third week in a row

On Wednesdays Freddie Mac releases its Primary Mortgage Market Survey of 125 lenders nationwide for interest rate data collected from Monday to Wednesday. On Feb. 2, 2011, the PMMS benchmark 30-year fixed rate at a cost of 0.8 origination points was 4.81 percent. The rate increased for the third week in a row and is at its highest level in six weeks.

Increasing rates have had a minimal impact on mortgage applications. The Mortgage Bankers Association’s Weekly Applications Survey showed a sharp increase in applications for the week ending Jan. 28, 2011. However the survey did not adjust its application index for the Martin Luther King Holiday. As a result the increase for the Jan. 28 survey matched the decline in applications for the prior week that included the King Holiday. Over the past two weeks the index was relatively flat for purchase applications and refinance applications were down about five percent.

If you have been using a refinance calculator to determine your monthly savings with a mortgage refinance or debt consolidation mortgage you have seen your savings erode since the calendar turned to 2011. If you are waiting for rates to decrease before submitting your application you may see your savings disappear completely. Consider submitting your application soon and locking in your savings while you can.

Jobs data: Does it add up?

On Friday Feb. 4, 2011, the Labor Department released labor statistics for January and the data was far below expectations. In January the economy added only 36,000 jobs, not even close to the expected 135,000 or more jobs that most economists were projecting. With 150,000 to 200,000 new jobs per month needed just to maintain stable employment the addition of so few jobs should result in an increase in the unemployment rate. This was not the case as the Labor Department reported the unemployment rate dropped from 9.4 percent to 9.0 percent. The consensus was the unemployment rate would increase to 9.5 percent.

Why the discrepancies between the expectations and the actual numbers? For the new jobs data most of those expecting three times as many jobs to be added to the economy cited the extreme weather in most of the nation in January as the primary reason for so few new hires. Subzero temperatures and foot high snow drifts outside are not conducive to seeking employment, or setting up job interviews with prospective employees. If the current weather patterns continue through the rest of February the expectations should be for a small increase in new employment with next month’s release.

When considering the sharp decline in the unemployment rate it is useful to understand how the unemployment rate is derived. Unlike the jobs report where businesses report the number of their new hires, the data for the unemployment is the result of telephone polling. Households are called and asked if anyone in the home is working or looking for a job. The answer is either “yes” or “no.” There is no answer for “I was looking but I have quit because there is no job out there for me.” The primary reason for the large decline in the unemployment rate for January is not because of significant new hiring across the country, but rather because a significant number of people have quit looking for work.

Bargains drive more sales

Following a long standing consumer trend, Americans buy when there is an incentive. Home sales increased with the homebuyer tax credit. Car sales increased with the “cash for clunkers” credits. Retailers have reported their biggest sales coincide with holiday sales. In January retailers slashed prices and looked to clear out inventory left over from the Christmas season. Consumers bought the bargains and nationwide retail sales increased 4.2 percent in January 2011 from the prior month.

Looking forward for retailers it will be a challenge to keep shoppers coming to their cash registers as their costs are rising quickly and they must soon raise prices to ensure they can make a profit. With rising prices for commodities, energy and food, consumers will soon be seeing higher prices.

Higher prices will provide the inflation that the Fed has been trying to stimulate. Higher prices and inflation will lead to higher mortgage rates. If you are using mortgage calculators to plan your new home loan or mortgage refinance you will see higher mortgage rates if you continue to wait.

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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1 Responses to "Mortgage rates rise for third straight week"
  1. pkb 24, May, 2011

    Nice Article


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