mortgage

As economy stumbles, mortgage rates slip

Mortgage rates edged lower this week amid reports that the economy slowed significantly in the first few months of the year -- regardless of what the Fed says.

Mortgage rates
30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage fell to 4.44 percent from 4.48 percent the previous week, according to the Bankrate.com national survey of large lenders. One year ago, that rate stood at 3.52 percent. Four weeks ago, it was 4.54 percent. The mortgages in this week's survey had an average total of 0.37 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage fell to 3.51 percent from 3.54 percent last week.
  • The benchmark 5/1 adjustable-rate mortgage rose to 3.35 percent from 3.34 percent. The benchmark 30-year fixed-rate jumbo fell to 4.45 percent from 4.47 percent.

Weekly national mortgage survey

Results of Bankrate.com's April 30, 2014, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:4.443.513.35
Change from last week:-0.04-0.03+0.01
Monthly payment:$830.16$1,180.37$727.18
Change from last week:-$3.91-$2.43+$0.91

Despite the small increase, borrowers shouldn't be worried yet. It's unlikely that rates will continue to climb in coming days, as they have been following a seesaw pattern, says Pava Leyrer, director of training for Northern Mortgage Services in Grandville, Mich.

"Rates have been going back and forth -- they go up 6 or 10 (basis points), then they go back down" she says. "It's still an extremely good market for borrowers."

Rates following the stock market

Mortgage rates once again seem to be fluctuating at the same pace as the stock market, says Brett Sinnott, director of secondary marketing for CMG Mortgage in San Ramon, Calif.

"For the first time in a few years, mortgage rates are following stocks again," he says. "They used to follow the exact same direction until the Fed stepped in. That correlation is coming back now."

That's another sign borrowers will definitely see more ups and down with rates in the near future, he adds.

Crawling economy

The U.S. economy barely grew in the first quarter of the year as the gross domestic product expanded at a 0.1 percent annual rate. That's worse than the modest expectations economists had (for a little more than 1 percent growth). It's also the weakest growth pace seen since late 2012.

The worse-than-expected news had an immediate effect on mortgage rates, says Michael Becker, a mortgage banker for WCS Funding in Baltimore. "Right after the GDP number came out, that's when bond yields started dropping," he says.

Mortgage rates tend to follow the same direction as yields on mortgage bonds and the 10-year Treasury note.

The still-fragile economy has certainly kept a lid on mortgage rates in recent months, says John Walsh, president of Total Mortgage Services in Milford, Connecticut.

"The problem is the economy truly isn't growing and the housing market isn't rebounding to the level they thought it would rebound," he says.

Fed looks at the bright side

Despite signs of slow growth, the Fed has a more optimistic perspective. It says that "growth in economic activity has picked up recently, after having slowed sharply during the winter," according to the Federal Reserve's Federal Open Market Committee statement released Wednesday.

Joel Naroff, president and chief economist for Naroff Economic Advisors, says, "Basically, it appears that the Fed members are on the same page as most economists who think we should move on from the essentially flat first-quarter GDP report," he says.

At the end of its two-day meeting, the Fed chose to stick to its earlier plan by shaving another $10 billion from the bond-buying program that was created to stimulate the economy and to keep rates low. The move shouldn't affect mortgage rates much, Becker says.

"This has kind of been priced into the market," he explains. "So unless you get a surprise in Friday's (employment report) numbers, I think they will stay steady."

Keep an eye on the jobs report

The Labor Department is scheduled to release the closely watched monthly jobs report on Friday. If the report shows the economy added a higher number of jobs in April than economists had expected, rates could rise.

A private employment report, released on Wednesday, beat economist's expectations as it showed that private employers added 220,000 jobs in April, according to payroll processor ADP. That's about 20,000 more than what was expected.

The report could be an indicator that the government's employment report on Friday might make rates move.

Not ready for higher rates

Regardless of modest improvements in the labor market, the economy isn't ready for higher mortgage rates yet, Walsh says.

"I don't think the economy could take another significant rise in interest rates," he says. "I think the Fed will do everything they can to keep interest rates where they are."

But if you are looking to get a mortgage, don't bet your money on it, he says.

"If you qualify today and you're happy with the rate you have, lock," he adds. "You never know what's going to happen tomorrow."

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