June 28, 2009 in Business

Spike in mortgage rates might be ‘aberration’

Marketwatch
 

CHICAGO – After a recent spike seen in mortgage rates, some consumers are wondering whether they’ve missed their chance to refinance into an ultra-low rate.

Fear not: While the conforming 30-year fixed-rate mortgage hit a daily average of 5.81 percent recently, it averaged 5.42 percent on Thursday.

“Predicting interest rates is like predicting who is going to win the World Series in January,” said Guy Cecala, publisher of Inside Mortgage Finance. That said, he calls the recent spike “somewhat of an aberration,” and expects rates will continue to drift down.

Why the recent run-up in rates? Over the past month or two, “the economic skies have brightened somewhat,” said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. The threat of “trillion-dollar budget deficits for the foreseeable future, the potential for significant inflation, and few clues as to how the government might extricate itself from intrusions into markets” created a landscape that was not appealing to investors, he added.

But now, rates are retreating partly because inflation doesn’t seem as immediate a threat as investors feared, Cecala said. In his opinion, nothing fundamentally has changed in the economy over recent weeks to warrant the rate rise, yet he expects volatility through the remainder of the year as investors debate the economy’s health.

“Realistically, I think that the rates will drift under 5 percent again. It may take a month, may take two months,” he said.

It’s also important, however, to realize that extremely low rates likely won’t be around forever, said Bob Walters, chief economist of Quicken Loans, in a statement.

“Volatility is the key word in the mortgage industry these days when it comes to rates,” said Kyle Kerwin, senior vice president of mortgage lending for Signature Bank of Arkansas.

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