Low Rates Gone?

For potential homebuyers and refinances the season for mortgage rates at or below 3.5 percent for 30-year fixed mortgages may be disappearing. In fact the Mortgage Bankers Association (MBA), predicts 30-year mortgage rates to rise to 4.4 percent by the end of 2013.

As if on cue, Freddie Mac states that mortgage rates increased for the first time in six weeks. Their data shows that the average rate for a 30-year fixed mortgage climbed to 3.42 percent in the week ending May 9th from 3.35 percent the previous week. The average 15-year rate increased to 2.61 percent from a record-low 2.56 percent.

Historically economic forces will dictate where mortgage rates go, and currently economic data has been more positive, unemployment is lower and the housing market is improving. U.S. home prices increased 10.5 percent in March from a year earlier the biggest gain in seven years, according to CoreLogic Inc., an Irvine California-based data provider.

The National Association of Realtor’s Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.5 percent to 105.7 in March from a downwardly revised 104.1 in February, and is 7.0 percent above March 2012 when it was 98.8. Pending sales have been above year-ago levels for the past 23 months; the data reflect contracts but not closings. Many mortgage analysts are anticipating rising rates.

Federal involvement in the mortgage-backed securities market has been keeping mortgage rates artificially low for some time now. As recently as September 2012, the Federal Reserve announced that it would buy $40 billion of agency mortgage-backed securities each month until the economy started to show signs of improvement. 

According to some analysts one possible indicator for the Fed choosing to stop the purchase program for mortgaged-backed securities would be an unemployment figure of around 6.5 percent, the latest figure shows unemployment a 7.5 percent. Whatever the rationale, more and more analysts are expecting the Fed to back out of the securities purchases which will have an immediate impact on higher rates.