Mortgage bonds improved last week, pushing mortgage rates lower in California and nationwide.
Positive economic news and strong housing data was trumped by ongoing Fiscal Cliff discussions on Capitol Hill.
The “Fiscal Cliff” is meant to represent January 1, 2013 — the date on which mandatory spending cuts are enacted by Congress and on which tax rates increases for many U.S. taxpayers.
Some analysts believe that if these two events are to occur simultaneously, it would derail the current U.S. economic expansion and revert the economy back into recession. That concern has spurred a flight-to-quality which has benefited mortgage bonds and, therefore, U.S. mortgage rates.
For example, last week, Freddie Mac reported the average 30-year fixed rate mortgage rate at 3.35 percent nationwide for borrowers willing to pay an accompanying 0.7 discount points plus a full set of closing costs. This is a 0.02 percentage point reduction from the week prior.
The average 15-year fixed rate mortgage rate was unchanged last week at 2.66 percent for borrowers paying an accompanying 0.7 discount points plus closing costs.
In this holiday-shortened week, mortgage rates may fade again.
Congress convened over the weekend in order to discuss the impending Fiscal Cliff, and ways to avoid it. Talks have been ongoing since this year’s election yet it appears unlikely that the simultaneous expiration will be avoided.
How this would affect the economy is unknown but mortgage markets would witness an immediate boost of demand, leading Fremont mortgage rates lower. Conventional, FHA and VA mortgage rates would all likely benefit.
And then, Wall Street will turn its attention to Friday’s December Non-Farm Payroll report.
Mortgage rates are expected to make big moves upon the report’s release. This is because, earlier this month, the Federal Reserve said it would begin raising the Fed Funds Rate only after the Unemployment Rate reaches 6.5 percent. Currently, the Unemployment Rate is 7.7 percent. If December’s jobless rate slips, moving closer to the Fed’s stated target, mortgage rates are expected to rise.
Similarly, if the Unemployment Rate rises, mortgage rates are expected to drop.