Economist's Commentary: July 18, 2008

Quick Take on the Economy: July 18, 2008

By Ken Fears

The 30-year fixed rate mortgage eased from 6.37 percent to 6.26 percent over the last week. One month ago, the 30-year FRM averaged 6.42 percent.
The spread between the average 30-year fixed rate mortgage and the 10-year Treasury remains elevated at 226 basis points, well above the 150 spread from early 2007.

Long-term mortgage rates have climbed well above 6.25 percent and it is unlikely that we will see them move lower in the near future.
Mortgage rates are likely to gyrate around this level as more negative economic news is released. Long-term mortgage rates are more sensitive to long-term expectations of economic performance. Oil prices do not affect it, but rising core prices (prices other than food and fuel) can.
The high default rate on mortgages has caused investors in the MBS market to withhold funds, pressing up rates in the mortgage market and bloating the risk spread. This spread is likely to stick around until the pace of new foreclosures falls later this year.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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