Why Some Buyers Are Feeling Like They Missed Out...
By Les Christie
Say goodbye to ultra-low
mortgage rates.
In the past month, rates have been on the rise and they are expected to
continue to climb. This week, the average rate on a 30-year
fixed-rate mortgage
jumped another 10 percentage points to 3.91 percent and are up from 3.3
percent in early May, according to mortgage giant Freddie Mac.
Meanwhile, those seeking a
15-year loans received an average rate of 3.03 percent, up from 2.56 percent -- a record low.
"It's unlikely that rates will ever be that low again," said Doug
Duncan, Fannie Mae's chief economist. Those who didn't take advantage of
record-low rates have missed the boat -- at least for now. Here are three reasons why:
1. The Fed is going to stop bolstering the housing market. The
Fed has kept rates at rock-bottom levels
by buying up to $85 billion a month of Treasury bonds and
mortgage-backed securities. That has enabled lenders to sell mortgage
loans at low interest rates and recoup their money immediately -- plus
profits.
"Up until recently, expectations were that the Fed would begin to taper
purchases of mortgage-backed securities and Treasury bonds late in 2013,
but that time frame appears to have moved to September, possibly
sooner," said Keith Gumbinger, vice president of
HSH.com, a mortgage information company.
If the Fed stops purchasing the securities, private investors will have
to pick up the slack. For investors to do that, the loans will have to
offer a better payoff. And that would mean raising rates for borrowers,
said Duncan.
2. The economy is no longer reeling. During the
recession, the Fed lowered its short-term interest rate to near zero in
order to stimulate the economy. But now conditions have improved
considerably since
the economy emerged from recession
four years ago. As the economic revival gains traction, it is creating a
tailwind for interest rate increases, according to Gumbinger.
Low rates happen when the economy is in distress. But now, the market
believes the economy is getting stronger, said Wendy Cutrefelli, a vice
president in the
Mortgage Banking Division of Bank of the West.
Job gains
have picked up lately, averaging about 202,000 a month over the past
six months. That hiring is advancing rather than retreating is good news
for the economy, and any positive future reports are expected to push
rates higher, according to Gumbinger. Even mediocre news might not cause
any meaningful decline in rates.
3. 3.3 percent rates are unprecedented. "The 30-year
[mortgage rate] hit a 37-year low in 2003 at 5.23%," said Gumbinger.
"That was the previous low-watermark prior to this financial crisis, and
it's likely we will move closer to that mark as we grind forward." Any
return to normal conditions, therefore, will likely be accompanied by
higher mortgage rates.
Even if they go up a percentage point or two, however, mortgages will
still be relatively low. Historically, 30-year loans are usually 5.5
percent or higher. For clues to the direction of mortgage rates, look at
the daily movements in
10-year Treasury bond yields. Mortgage rates track Treasury yields with the difference between them holding fairly constant.
These days, Treasury bonds have been on a jumpy uphill climb, with the
10-year hitting 2.21 percent on May 31, its highest closing since April
2012. On Thursday, the yield was about 2.10
percent.
Since the interest rate on a 30-year is usually 1.7 to 2 percentage
points higher, it indicates that mortgages should be at between 3.82
percent and 4.12
percent this week.
