Europe Drives U.S. Mortgage Rates to Historical LowsDec 12 2011
We have seen a flurry of economic activity over the past couple weeks, with mortgage rates near all-time lows once again. Last time we saw rates fall to these lows, it was short lived as supply of new mortgage applications surged to fill (and even exceed) investor demand and capacity. In this case, the market hasn’t yet seen such a surge that rates are driven higher, which some attribute to the holiday season.
Last week, although we saw some modest improvements in consumer confidence, unemployment claims, and, news from Europe took center stage. The European Central Bank cut interest rates by 0.25% Thursday, while EU Leaders met to address the debt crisis. Rating Agencies have the Euro nations on credit watch and may downgrade ratings on debt as Moody’s indicated the summit failed to generate “decisive policy measures” to stave off the ongoing crisis. All, told investors have continued to seek safe haven with Treasuries and mortgage-backed securities, which has held rates at these historic lows.
Today offers little economic news, but the rest of the week has some economic reports that could drive rates higher if a continued positive trend is seen. Look for November retail sales and the Federal Reserve’s rate decision tomorrow, followed by the Producer Price Index and Unemployment claims on Thursday, and Consumer Prices for November on Friday. Most importantly, keep an eye on the international stage. If we see decisive actions announced to help rectify the European debt crisis, investment should start to flow out of safer investments like Treasuries, which would drive interest rates higher.
Some of the benefit of the “HARP 2” refinance program is now flowing to borrowers, with some additional opportunity to refinance if you owe more than your house is worth and qualify. Fannie Mae and Freddie Mac are both working on enhancements that should be available in March that should create additional borrower opportunity. But where we have seen the most lift with this program so far has been with Fannie Mae and Freddie Mac limiting some of the punitive charges for certain loans (based on credit score, occupancy, amount of equity, etc). Some borrowers that didn’t see much of a benefit to refinance under the old program now have the ability to significantly lower their rate. It will be important to see how the implementation of this program continues to develop in the coming weeks and months.