Mortgage Rates Find Stability Despite Mixed Bag of News
In a mixed week of news, perhaps the most important outcome is that mortgage rates remained at attractive levels:
- Fed Chairman Ben Bernanke conceded there was a possibility that the economy was in recession
- A provision to give bankruptcy judges more latitude to ease mortgage terms appeared headed for defeat
- Housing sales posted a rare rise, even as prices continued to fall
- 30-year mortgage rates remained little changed for the second week in a row
As much as the above might seem a mix of good news and bad news, overall it translates to a decent environment for home and mortgage shoppers.
Bernanke Says the “R” Word
It has become almost a word game for government officials to avoid saying the word “recession,” so anyone who had April 2nd in the pool is a winner: that’s when Federal Reserve Chairman Ben Bernanke finally used the word. He originally tried to get by with the word “contraction,” but when pressed by New York Senator Charles Schumer, Bernanke conceded that a recession was a possibility.
All this, as Bernanke correctly pointed out, is really a technicality. By now it is widely accepted that the economy has weakened, but for most people the effect of recession is surprisingly mild. Unless a person is in a troubled industry, putting off something like a home purchase due to talk of a recession could well be a poor decision in the long run. Economic weakness is one reason why interest rates are currently so low, making this a good time for mortgage borrowers.
Future Mortgage Borrowers Win
Another positive for mortgage borrowers is that a House and Senate compromise on a housing bill excluded a controversial provision that would have given bankruptcy judges more latitude in resetting mortgage terms. Why is defeat of a mortgage relief provision good news? Because it would have only applied to existing mortgages, and the more the current mortgage crisis costs lenders now, the more difficult and expensive mortgages will be for future borrowers.
Rising Volume, Falling Prices: A Sign of the Bottom?
Monthly housing figures showed an interesting divergence — sales volume actually rose, while prices continued to drop. This is somewhat in contrast with many of the figures over the past year, which showed volume falling at a faster rate than prices.
In a supply-and-demand driven market, it is not unusual for changes in demand to lead changes in prices. Falling demand certainly led prices on the way down, and now it is possible that the uptick in volume signals that we are nearing a bottom in prices. It is important not to make too much of one month’s worth of data, but it is worth watching to see if a trend is developing.
Mortgage Rate Stability is Welcome — Especially Below 6%
If housing prices are nearing a bottom, they are doing so at a time when mortgage rates are very inviting to buyers. After bouncing around quite a bit, 30-year mortgage rates have settled into a range of around 5.85%. Historically, anything below 6.0% is fairly rare, so anyone interested in a mortgage might take this as an opportunity to start shopping around.
Tags: Bernanke, borrowers, Federal Reserve, home sales, interest rates, lenders, mortgage, mortgage rates
