Results of Bankrate.com’s Jan. 24 national survey and the effect on monthly payments for a $125,000 loan
|30-year fixed||15-year fixed||1-year ARM|
|This week’s rate:||7.16%||6.72%||6.83%|
|Change from last week:||-.02%||N/C||-.01%|
|Change from last week:||-$2||N/C||-$1|
Will the mortgage party end before it really gets going? Probably not, but the outlook for interest rates has gotten cloudier in recent days and that could put a damper on revelers’ enthusiasm.
Rates dropped to around 7 percent in early January, but they’ve been climbing since then. The stock market’s strong showing the past several days, a rebound in the ability of companies to finance their operations in the bond market and dimming expectations of another large Federal Reserve Board rate cut at the end of January all share the blame. Factor in predictions that a recession isn’t in the cards after all and borrowers may be looking at stable rates for now instead of the falling ones expected as recently as a week or two ago.
The change in sentiment may just be temporary. With layoffs mounting, manufacturing output slowing and consumer confidence tanking, there’s a good chance the economic outlook and rates will resume their coincident slide soon. But mortgage hunters should be aware of the contrary stance, even if a certain writer who shall remain nameless doesn’t necessarily agree with it.
What’s going on? Market players seem to be betting that the Fed’s surprise rate cut on Jan. 3 will help pull the economy out of the doldrums. The Nasdaq market has gained ground in 2001 after plunging for much of 2000, for example, while shares of companies that stand to benefit from lower rates and an expanding economy are rising. That suggests people see a full-blown economic rebound in the real world later this year.
Investors have been kinder to corporations too, buying more of the bonds they sell to finance their operations. Just a few weeks ago, investors shunned corporate bonds out of fear the slowing economy would make it difficult for indebted companies to pay them back.
Recent unemployment, sales and housing data haven’t been as dire as some forecasters predicted either. That has increased the chance the Fed will cut rates by one-quarter of a percentage point, or 25 basis points, at the end of the month instead of firing off another 50-basis point reduction.
So there you have it — the nutshell explanation why mortgages haven’t continued to get cheaper. I still think rates are headed lower over the next month and that the stock market has gotten ahead of itself. But it’s only fair to point out why the punch bowl seems to be running a little low on rum.