What to make of the rare calm in mortgage rates

February 19th, 2013

Although mortgage calculators make it relatively easy to keep track of the changing variables involved in buying or refinancing a house, something else has made it even easier lately -- a rare flat period for mortgage rates.

From the end of January through mid-February, 30-year mortgage rates were unchanged at 3.53 percent for three straight weeks. That kind of stability is unusual for mortgage rates, and may help potential buyers and refinancers keep up with the market more easily. However, don't forget about your favorite loan calculator just yet -- there are still some potential changes to track.

Here are three things to keep in mind before you assume that a period of stability in mortgage rates buys you some extra time for planning:

  1. Mortgage rates may be hanging in the balance. Prior to being unchanged for three weeks, mortgage rates had been rising overall since late November. Leveling off may indicate that they have finished rising for the time being, but it is also the way markets often act while they are simply digesting recent changes. It is entirely possible that another push upwards in mortgage rates might follow the recent pause.
  2. The housing market has been trending upward. Of course, mortgage rates are just one of two major variables you need to feed into a mortgage calculator, with home prices being the other. With 19 of the 20 major metropolitan markets tracked by the S&P/Case-Shiller Home Price Indices showing year-over-year gains, the total cost of buying a home in most markets may be rising even if mortgage rates hold steady.
  3. Local supply and demand conditions can be much more unstable. National averages for both home prices and mortgage rates tend to smooth things out, but the reality is these are far from homogeneous markets from one locality to the next. Supply-and-demand dynamics are very subject to local characteristics, and can fall into a state of imbalance that can greatly exaggerate national trends. Thus, in some markets real estate prices will rise much faster than the national average, and the availability and cost of mortgages may vary significantly as well.

In short, the recent calm in national mortgage numbers temporarily neutralized one variable in home financing calculations, but conditions overall are still subject enough to change that nobody entering the market should feel complacent.

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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