Long-Term Florida Mortgage Rates Decline Slightly; Short-Term Home Loans Rise

Long-term mortgage rates fell slightly this week while short-term mortgage rates went up, according to Bankrate.com.

The 30-year fixed-rate mortgage (the industry benchmark) fell .03 percent to a national average of 6.34 percent, according to a national survey of large lenders. It marked the first decrease in long-term Florida mortgage rates in five weeks. The mortgages in this week’s survey had an average total of 0.30 discount and origination points. A year ago at this time, 30-year fixed-rate loans averaged 5.72 percent, and as recently as early January, rates hovered around 6.00.

The 15-year fixed-rate mortgage fell also fell .03 percent and ended the week at 5.99 percent. The nation’s 5/1 adjustable-rate mortgages (ARMs), meanwhile, rose by that same amount, with an average of 6.08 percent to conclude the week.

Members of the Federal Reserve have hinted that more short-term rate hikes are coming soon, as inflation reports are showing prices rising faster than desired. At first glance, that seems like a surefire sign that long-term mortgage rates will climb higher, but some counterintuitive investors are banking on inflation fears dying down and interest rates remaining low.

“You’re back to the conundrum,” said Jay Brinkmann, an economist for the Mortgage Bankers Association, referring to a famous remark a year ago by Alan Greenspan, who commented that “the broadly unanticipated behavior of world bond markets remains a conundrum.”

The retired Greenspan, who was succeeded as Federal Reserve chairman by Ben Bernanke several weeks ago, was perplexed by long-term interest rates going down while the Fed had been raising short-term rates. The answer can be attributed to three factors, Brinkmann believes.

1. Long-term inflation doesn’t scare anyone because the Fed is raising short-term rates. By and large, investors have faith in the Fed that they’ll deal with short-term interest rates appropriately to keep inflation from coming back.
2. Bond investors are nervous that the economy will slow down if temporary tax cuts aren’t renewed.
3. Most importantly, there’s a lot of demand, both domestically and abroad, for bonds of all types, including U.S. Treasuries and mortgage-backed securities. That keeps long-term bond prices up and yields down, with long-term mortgage rates staying low as a result.

Bernanke has said that short-term rate increases “might be needed to keep inflation pressures contained.” With the Fed pretty much promising that it will raise short-term rates again, don’t be surprised if shorter-term Florida home loan interest rates rise. But don’t overreact if you are considering 30- or even 40-year Florida home loans. Long-term inflation fears don’t scare investors and they shouldn’t terrify you, either. Look for relatively low rates to be available to borrowers with good credit throughout 2006.