It was a mixed week for mortgage news. Here were some items of interest:

• Mortgage rates rose in the last week of January, breaking a streak of four straight weeks in which those rates declined.
• Mortgage application activity was a mixed bag. New purchase applications increased, but refinancing applications — which had been running hot and heavy — slowed down.
• A Federal Reserve survey reported that 55% of U.S. banks had tightened their mortgage lending standards.
• The service sector of the economy contracted sharply in January, heightening fears that the economy may already have slipped into a recession.
• Oil prices, which were tickling the $100 mark not too long ago, fell below $90 a barrel.

It’s these last two items which may turn out to be the best news of all for mortgage shoppers.

Mortgage Rates and Applications

Taking a look first at mortgage rate and application news, the tick up in mortgage rates should be no cause for alarm. Even with that mild increase, 30-year mortgage rates had still fallen by a full percentage point since last July. From both a recent and a long-term historical standpoint, mortgage rates remain cheap. In short, a break in the downward trend in rates should not discourage serious mortgage shoppers. If anything, it should encourage them to get in gear, since it is a reminder that no economic trend lasts forever.

In light of this tick up in rates, it is no surprise that refinancing activity cooled slightly. What’s potentially more significant is the strength in new purchase applications. This hardly represents a roaring surge of demand, but it does indicate that lower mortgage rates may be forming a quiet level of support for the housing market.

As for the tighter lending standards, it is significant that these applied to prime borrowers — a reminder that the mortgage mess has spread beyond the much-maligned subprime sector. Still, what qualified borrowers need to understand is that mortgage lenders will still welcome them with open arms. These lenders need to do business, and the tighter standards become, the more they will prize applicants who can meet those standards.

Macroeconomic Trends

As for the macroeconomic news about the economy and oil prices, these are significant items for mortgage shoppers. Conventional wisdom says that interest rates decline in a weak economy, but mortgage rates actually rose despite the bad news about the service sector. Economic weakness may help new home buyers more by keeping housing prices low than by driving mortgage rates much lower than they already are.

One thing that will hold interest rates up, even in the face of economic weakness, is concern about inflation. That’s why news of oil prices slipping is good news for mortgage shoppers. Mortgage rates may have fallen as far as they could go without some sign of inflation easing. While oil is only one of many factors driving inflation, it certainly has been a powerful one of late. If cheaper oil leads to inflation backing down, it may give rates even further to fall.

While some news pointed to higher rates and others pointed to the possibility of lower rates, the clear truth is that rates are already pretty low. If mortgage shoppers remember nothing else, it should be that fact.

Tags: mortgage, mortgage application, mortgage lenders, mortgage rates, refinancing

This entry was posted on Thursday, February 7th, 2008 at 7:21 am and is filed under Weekly Wrap-Up. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.