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Spring Fever Takes Hold

May 15, 2017


This spring offers a dichotomy.

On the one hand, we have seen an increase in housing and lending activity. Home sales are up (and up for 2017), and so are housing starts and residential investment. Purchase-lending activity has trended higher in weekly comparisons since late March. 

Movements in mortgage rates, on the other hand, have adhered to the typical perception of spring fever: They’ve remained relatively staid and inert, having settled into a range where movements at best come in languid steps. In fact, the steps have been so languid that Mortgage News Daily tells us that the average effective rate across the spectrum has moved only 11 basis points over the past two weeks. It should be no surprise, then, that the fixed-rate 30-year loan for top-tier borrowers continues to hold the 4%-to-4.125% range that it has held for the past two months. 

That said, let’s be careful not to extrapolate indefinitely. It’s not foreordained that the events of today must invariably occur tomorrow. Rate quotes stretched the upper limits of the range this past week. 

Some economists are again thinking about economic growth (after thinking there was little of it to be had) and rethinking interest rates, and with good reason: The employment data from last week show job growth regaining its footing. Payrolls increased by 211,000 in April to drop the unemployment rate to 4.4%. Payroll growth was more than doubled that of March. 

The good news on jobs has pushed the yield on the 10-year U.S. Treasury note up to 2.4%; two weeks ago it was below 2.2%. Gold, $1,270/ounce a fortnight ago, trades at $1,220/ounce today. (The gold price moves inversely to interest rates.) 

We could see 4.25% become the new upper bound on quotes for prime 30-year loans. The spring fever that has overcome mortgage rates could be about to break.


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