Oct. 30, 2009 - Sonoma County, CA Mortgage Rate Outlook

Mortgage Rate Outlook

With September now behind us, stock markets started October in a fashion similar to other Octobers: they sold off to some degree.  After a pretty good third quarter's profits were booked, at least some of those gains from equity sales have been stashed back into Treasuries, driving yields down.  This turn is pressuring mortgage rates down to the lows of earlier this year.

The overall average for 30-year fixed rate mortgages declined by almost a tenth percent this week, and HSH's FRMI closed Friday with five-day average of 5.4%.  Five-one hybrid Arms also eased back, shedding eight basis points to close in national survey at 4.75%.  At 5.07%, conforming 30-year FRMs sported their lowest average rate since the late March to late May period gave us nine consecutive weeks just over (and under) the 5% mark.

A bright spot was Construction Spending rose by 0.8%, its second positive reading of the year.  More impressive was the 4.7% rise in spending for residential projects, which was more than enough to offset drags from the troubled commercial sector (-0.1%) and the 1.1% drop in the public sector.  Stimulus money isn't making it out to lower-level projects all that quickly, and cash-strapped states and counties are simply putting projects on in definite hold.

Low mortgage rates continue to provide support for housing markets, and the gains in residential construction spending could be one of the keys to getting a firmer recovery underway.  However, credit conditions remain tight, and while home prices have begun to firm to some degree, it may be a long time until most underwater homeowners will be able to take advantage of those low rates to recast their balance sheets.

Does October continue to live up to its reputation as a wicked month for stocks? To the degree that it does, mortgage rates should benefit.  Spring lows ignited a fair bit of refi activity, but building lasting refi waves requires low (if not continually declining ) interest rates for a period of weeks, even months.  We'll continue to have low rates, but significant declines are unlikely.  If you're considering refinancing, don't hesitate too long or a fickle October market may catch you napping.

Treasury yields dipped at week's end, so mortgage rates should start next week on a softer note.