Mortgage rates ticked up from historic lows for the fourth week in a row as the bonds that finance most home loans continue to look overpriced to investors.
Some have speculated that the prospect of rising mortgage rates could spur homebuyers who have been sitting on the fence into action. But for now, mortgage rates are still well below historic norms, and there’s speculation that the Federal Reserve could move as early as next week to keep long-term rates in check.
For 30-year fixed-rate mortgages, rates averaged 3.66 percent with an average 0.7 point for the week ending Aug. 23, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. That’s up from 3.62 percent last week, but well below the 4.22 percent offered at the same time a year ago. Rates on 30-year fixed-rate mortgages hit an all-time low in Freddie Mac records dating to 1971 of 3.49 percent during the week ending July 26.
For 15-year fixed-rate mortgages — a popular option for homeowners refinancing a loan — rates averaged 2.89 percent with an average 0.7 point, up from 2.88 percent last week but down from 3.44 percent a year ago. Rates on 15-year fixed-rate mortgages hit a low in records dating to 1991 of 2.8 percent during the week ending July 26.
Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.8 percent with an average 0.6 point, up from 2.76 percent last week but down from 3.07 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.
For one-year Treasury-indexed ARMs, rates averaged 2.66 percent with an average 0.4 point, down from 2.69 percent last week and 2.93 percent a year ago. Rates on one-year ARMs hit an all-time low in records dating to 1984 of 2.65 percent during the week ending Aug. 9.
A separate survey by the Mortgage Bankers Association showed demand for purchase loans during the week ending Aug. 17 was up a seasonally adjusted 0.9 percent from the week before, and up 3 percent from a year ago.
Applications for refinancings — which accounted for eight out of 10 loan applications — were down 9 percent from week to week, to the lowest level since early July, the MBA said.
With mortgage rates at all-time lows in July, sales were up 9.4 percent from a year ago and home prices posted their strongest annual growth since 2006, the National Assocociation of Realtors reported this week. Now, some are wondering if mortgage rates are headed up, what impact that might have on sales.
In the short run, rising mortgage rates could boost home sales by getting buyers off the fence, NAR Chief Economist Lawrence Yun said in March, when mortgage rates also appeared to be on their way up. But a significant increase in mortgage rates will reduce homebuyers’ purchasing power and shrink the pool of eligible homebuyers, Yun fretted.
At the time, Yun expected rates on 30-year fixed-rate mortgages were headed to 4.5 percent, which he said would dent home sales by 3 percent. If rates on 30-year loans hit 5 percent, the impact on home sales would be closer to 6 percent, Yun said in March.
The Federal Reserve has made it a priority to keep mortgage rates and other long-term interest rates low during the downturn to encourage borrowing and stimulate the economy.
In a program that wound down in 2010, the Fed bought $1.25 trillion in mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. The artificial demand for MBS created by the Fed pushed MBS prices up, and yields down (bond prices and yields move in opposite directions).
When the Fed ended the program in March, 2010, the Mortgage Bankers Association predicted that rates on 30-year fixed-rate mortgages would rise from around 5 percent at the time, to 6.6 percent by the fourth quarter of 2012.
But the European debt crisis and continuing uncertainty about the global economic recovery created demand for Treasurys, government-backed MBS and other investments seen as safe havens by investors. That pushed long-term yields — including mortgage rates — down even more.
In a forecast issued this week, economists at Fannie Mae said they expect rates on 30-year fixed-rate mortgages will average 3.7 percent next year, and that existing home sales will grow more modestly in 2013 (2.8 percent) than this year’s projected growth of 7.8 percent.
The Fed has continued measures designed to keep a lid on interest rates — last fall it announced it would reinvest principal payments on its holdings of Fannie Mae and Freddie Mac debt and MBS, which totaled $1 trillion at the time, into agency-backed MBS as those investments matured.
Now, there’s speculation that the Fed will embark on a third round of "quantitative easing," or QE3, to keep an economic recovery on track.
Minutes of the Federal Open Market Committee’s last meeting showed its members in general agreement that "additional monetary accommodation would likely be warranted fairly soon" absent considerable improvement in economic indicators.
The minutes show that committee members discussed the merits of purchases of Treasurys versus agency MBS. While some worried that more large asset purchases could actually "increase the risks to financial stability or lead to a rise in longer-term inflation expectations," others "agreed with the staff’s analysis showing substantial capacity for additional purchases without disrupting market functioning."
Many at the meeting said any new purchase program "should be sufficiently flexible to allow adjustments, as needed, in response to economic developments or to changes in the committee’s assessment of the efficacy and costs of the program," meeting minutes said.
The Federal Reserve could act at as early as next week’s Jackson Hole symposium, where Fed Chairman Ben Bernanke announced QE2 in 2010, Reuters reports.
Mortgage broker and Inman News columnist Lou Barnes sees no fundamental economic explanation to the recent rise in rates. While some analysts think investors are less enthusiastic about buying Treasurys and mortgage-backed securities because the economy is improving and the Fed won’t embark on QE3, Barnes thinks there’s a more technical explanation.
With yields at record lows, bond and MBS prices are also at record highs. Investors are simply taking profits, pushing bond and MBS prices down and yields up, Barnes says. He thinks the sell-off in 10-year Treasurys could push yields back up to 2 percent, which would put 30-year fixed-rate mortgages back in the 4 percent to 4.25 percent range.
The increase in rates "might stop here, but rates are not going all the way back down until something ugly happens," Barnes said in his most recent Inman News column.