Thursday, January 31, 2013

Rates Continue Their Slow Rise

Mortgage rates today are still very low, but borrowers have a very short memory. They tend to forget that the rate on the 30-year fixed, which sits around 3.6% today, was a full percentage point higher a year ago, and above 5% in January of 2010. The purchasing power gained through today"s low rates have arguably helped fuel the recovery in home sales.

Low rates have also sparked a boom in mortgage refinancing, which in turn has put more spending money in consumers pockets. Still, the slightest move higher has dramatic effects. Witness the 10% drop in refinance applications from a week ago, on the Mortgage Bankers Association"s weekly report. The rate on the 30-year fixed moved from 3.62% to 3.67%.  But rates are now up .375%, and it may hold given MBS/Treasury market technicals and moderately improving economic fundamentals.

The complacency has a lot to do with rates having be en low enough to make no-cost refis easy. But when rates rise this much, the no-cost options go away and people tend to wake up.

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