Sign in
Become a MarketWatch member today
Amy Hoak's Home Economics
March 29, 2011, 10:39 p.m. EDT
View all Amy Hoak's Home Economics "º
"¹ Previous Column
Tapping home equity in retirement
First Take "º
Amazon beats Apple to the music cloud
By Amy Hoak, MarketWatch
CHICAGO (MarketWatch) "” As world events dominated the news in recent weeks, mortgage rates enjoyed a reprieve from a climb that began late last year, keeping the 30-year fixed-rate mortgage down below 5% at the start of what is traditionally the home buying and selling season.
While multiple factors move mortgage rates and it's impossible to pinpoint the exact reason why they're up or down, we do know this: The tsunami and subsequent nuclear disaster in Japan likely caused a flight to quality by worried investors, moving more money from riskier investments into safer U.S. Treasury bonds and mortgage-backed securities, said Robert Rauf, a mortgage banker with Real Estate Mortgage Network in Manasquan, N.J. Ditto for conflicts in the Middle East, including the current situation in Libya.
That flight to quality by investors, in turn, caused mortgage rates to drop.
The average rate on 30-year fixed-rate mortgages was 5.05% for the week ending Feb 10, according to Freddie Mac's weekly survey of conforming mortgage rates. The Libyan revolt began in mid-February, on the heels of the uprising in Egypt. The tsunami in Japan occurred March 11.
And by the week ending March 17, rates on the mortgage had fallen to an average 4.76%, Freddie Mac reported.
Rates are up a bit since, averaging 4.81% for the week ending March 24; that rise may be due to inflationary pressures, Freddie Mac's chief economist Frank Nothaft said on Thursday. Read more: Mortgage rates rise on inflation data.
Or, the leveling off could also signal something else: Investors are getting past the "initial shock/panic/concern which accompanies such events," Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information, wrote in an email.
"Fear of thousands dead has turned into reality; fear of a nuclear disaster has turned into a reality, fear that civil unrest in any number of countries would turn deadly has become a reality. We're passing the fear and adapting to the reality," he wrote, "and after a period of assessment, this often tends to level off interest rates and see them return to pre-event path (if perhaps with lesser velocity, in some cases)."
That said, mortgage rates still seem to be suppressed somewhat by the effects of recent world events. And if conditions continue to worsen in Japan or the situation deteriorates further in Libya, rates could face more downward pressure, said Dan Green, loan officer with Waterstone Mortgage, in Cincinnati.
But this effect typically doesn't stick around too long.
For mortgage rates, investors' flight to quality is a good thing "” temporarily, Rauf said. Eventually, fear wears off, and people want back the money they socked away in safe havens to invest elsewhere.
In the future, some think the costs of cleanup of the Japan disaster could end up boosting mortgage rates more, Rauf said. Japan is a major holder of U.S. securities, and the country "” as well as insurance companies settling claims "” will likely need to sell off a chunk of U.S. investments to pay for the crisis, he said. "The extra supply [of U.S. securities] will end up driving the price down and the yield up," Rauf said. That could cause mortgage rates to rise.
But Bob Walters, chief economist for Quicken Loans, said while Japanese expenses will be large, unwinding of positions won't happen at once and shouldn't impact mortgages severely.
And of course, while rates have been influenced heavily by international news lately, domestic issues could cause rates to rise, too. For example, the Treasury Department recently said it would begin selling back mortgage-backed securities that it bought to support the mortgage markets, and that could also boost rates higher, Rauf said. Read more: Treasury to sell $142 billion MBS portfolio.
In the long run, what happens with rates depends on when the economies of the world start improving appreciably and "how the central banks of the world will unwind all the stimulus, the medicine it has pumped into the patient," Walters said.
In Walters's opinion, rates won't move too much "” remaining in the ballpark of 4.5% and 5.5% "” throughout the year. That basically mirrors the most recent Freddie Mac forecast, which has rates on the 30-year fixed-rate mortgage slowly rising to 5.5% in the fourth quarter of this year.
Even at 5.5%, rates are low, historically speaking. But at under 5%, they're near record lows. "Realistically, rates right now are flirting around the 40-year low mark," Rauf said. "The problem is, everyone is spoiled."
The recent dip in rates helps those in the market for a mortgage to lock in lower rates, but they should move soon, Green said. "I've been recommending to clients: The current market is a gift "” they should be locking right now," he said.
Amy Hoak is a MarketWatch reporter based in Chicago.
Amazon.com unveils a consumer music cloud service in an effort to make its digital content service more competitive with Apple Inc.'s iTunes, writes Therese Poletti.
5:22 p.m. March 29, 2011
"Index of euro-zone economic sentiment declines http://on.mktw.net/eKUbKI" 4:16 a.m. EDT, March 30, 2011 from MarketWatch
"Japanese stocks rally as yen weakens; Nikkei Average ends 2.6% higher http://on.mktw.net/hgL4Jt" 1:04 a.m. EDT, March 30, 2011 from MarketWatch
"Japanese stocks extend rally in afternoon trading; Nikkei Average up 1.8% http://on.mktw.net/g9nq3d" 10:42 p.m. EDT, March 29, 2011 from MarketWatch
"Japan's Nikkei Stock Average ends morning trade with 1.2% gain, helped by weak yen http://on.mktw.net/hUz1cd" 9:04 p.m. EDT, March 29, 2011 from MarketWatch
"Hong Kong stocks rise, with financials advancing; Hang Seng Index up 0.6% http://on.mktw.net/gzpaIB" 8:32 p.m. EDT, March 29, 2011 from MarketWatch
Wall Street Irregulars
China's coal-mine canary still chirping
Media Web
5 reasons why the iPhone is overrated
Your Portfolio
How to play the global commodities trends
Home Economics
How Japan's tsunami lowered your mortgage rate
Tech Tales
AMD's search for CEO seems stymied
Read Full Article »