Tuesday, June 26, 2012

Rates climbing?

Mortgage markets worsened last week as Greece tentatively formed a government and the Federal Reserve extended its Operation Twist program by $267 billion. Neither event, however, removed the uncertainty surrounding global markets. Mortgage rates ended the week slightly worse. Greece Elections Bring Few Resolutions Greece's new government is already in turmoil. It's Finance Minister has resigned and the nation must still agree adhere to stringent austerity measures in order to meet the terms of its IMF bailout. Early talk is that the new government will seek to revise the terms of its fiscal austerity, a move that would keep the nation-state -- and the whole of the European Union -- in fragile balance. Should Greece decide to remain on the austerity path, it will likely receive its aid and U.S. mortgage rates would respond by climbing. This is because economic uncertainty in Greece has helped to keep U.S. mortgage rates down since 2010. A reversal in policy would cause mortgage rates to reverse higher. Toward the end of last week, mortgage market teased this outcome. It was also clear from last week's action that Wall Street expected more than the Federal Reserve gave it after the most recent FOMC meeting. The nation's central banker extended Operation Twist through the end of the year, flattening the long end of the yield curve a bit. However, it did little else to prop up an economy that may be slowing. A bigger stimulus plan would have propped up stocks at the expense of bonds -- including mortgage-backed bonds. Instead, mortgage rates only rose slightly post-FOMC. 30-Year Fixed Mortgage Rates At 3.66% And Falling According to Freddie Mac, 30-year fixed rate mortgage rates fell 5 basis points to 3.66% last week, on average. This was the lowest recorded 30-year fixed rate mortgage rate on record as this year's Refinance Boom continues. The 15-year fixed rate mortgage rate also dropped, stopping at 2.95%, on average. This is 0.01 higher than the benchmark rate's all-time low -- a record set two weeks ago. This week, mortgage markets will continue to take cues from Europe, and from a bevy of U.S. economic data including the New Home Sales report and the release of the Pending Home Sales Index. Europe will also play a key role in affecting U.S. mortgage rates, as will China. In general, what's bad for the world's economy will be good for U.S. mortgage rates. Mortgage rates remain near all-time lows. If you're considering a home purchase or refinance, the timing looks good.