Rate Update May 25, 2010

Fixed mortgage rates are mostly unchanged this morning while ARMs are moving higher.

Fear amongst financial institutions in Europe is pushing the London Interbank Offering Rate (LIBOR) higher.  The LIBOR is similar to the Federal Funds rate here in the US and reflects the rate of interest banks pay to each other when lending money to each other.  The LIBOR is also the base index for hybrid ARMs such as the 5/1 ARM and 7/1 ARM so as this index moves higher the rates on these products are following.

These fears have also entered into the US stock market today.  The equity markets started the day sharply lower which is helping to keep fixed rate mortgages low.

Further fueling concern is growing tension between North and South Korea.  Mounting geo-political pressure creates uncertainty which causes investors to seek safe investments like bonds.  This should also help fixed mortgage rates remain low.

Lastly, the monthly Case-Shiller home price index report was issued today.  The report showed annual price appreciation but lower prices from the end of last year suggesting the homebuyer tax credit had a large impact on demand.

It looks like we could be in for another bumpy ride.  Unfortunately, much of the financial news is bad news today which bodes well for mortgage rates.

Current outlook: neutral