The Conundrum continues:


I cannot find my notes on where this is from, but it looks like the WSJ: 

DESPITE THE FEDERAL RESERVE’S rate raising campaign started June 30, 2004, fixed mortgage rates are lower now than they were a year ago.

The average rate on a 30-year fixed mortgage is 5.66%, down from 6.30% a year ago, according to’s national weekly survey of large lenders. As for one-year adjustable-rate mortgages, the rate is 4.69%, up slightly from 4.43% in June 2004.

While fixed mortgage rates don’t move in lock-step with Fed actions, they do tend to be responsive to rate decisions. So the decline in mortgage rates has surprised some economists. At the beginning of the year, economic forecasts from several associations called for fixed mortgage rates to end 2005 near 6.5%. Now, some economists are revising their estimates downward, to 6%.

What’s different? One factor is that the core consumer price index, a key inflation indicator that some say has a direct effect on mortgage rates, increased rapidly during the second half of 2004, and economists expected the pace to continue.

But the CPI has plateaued in 2005, remaining at 2.2% through May. "It put inflation fears away and has allowed long term rates to remain low," says Lawrence Yun, economist for the National Association of Realtors.    –Steven Sloan

Category: Fixed Income/Interest Rates, Real Estate

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3 Responses to “Mortgage Rates versus Fed Fund Rates”

  1. Danielle says:

    Have you seen this:

    If this is occuring now, what will be the impact of IO and ARM mortgage seasoning?

    Since less homeowners are going for fixed rates, shouldn’t we expect the short rate to have more impact than long rates on this real estate boom?

  2. Mark T says:

    It will at the margin but not in the aggregate

  3. Mabelle says:

    Freddie Mac’s weekly rate report showed that the long-term mortgages have reached the highest since June 2002.

    The 30-year fixed rate mortgage average reached 6.59% this week compared to last week’s 6.58%. The one-year average for adjustable rate mortgages is now 5.67%. This is higher than last year’s average.

    Mortgage rates have increased for 6 consecutive weeks. It showed a consistent trend based on Freddie Mac’s economic forecast. Frank Nothaft, chief economist of Freddie Mac, reported that mortgage rates would continue to increase over the coming year.

    By Mabelle Sese
    Real Estate Press