Mortgage Rates Rise to the Highest Level in Two Months

After reaching historically low rates in early May 2013, mortgage rates have been rising every week. After eighth consecutive week of increase, mortgage rates are now at the highest level since July 2011.

Freddie Mac’s weekly Primary Mortgage Market Survey released on June 27 reported that both the fixed and adjustable mortgage rates went up again last week.

30-year fixed-rate mortgage (FRM) averaged 4.46 percent with an average 0.8 point, up from last week when it averaged 3.93 percent. This represents the largest weekly increase for the 30-year fixed since the week ended April 17, 1987. It was 3.35% in early May and has gone up a whopping 1.11% in just 8 weeks.

15-year FRM averaged 3.50 percent with an average 0.8 point, up from last week when it averaged 3.04 percent. A year ago at this time, the 15-year FRM averaged 2.94 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.08 percent this week with an average 0.7 point, up from last week when it averaged 2.79 percent. A year ago, the 5-year ARM averaged 2.79 percent.

The mortgage rate hike was triggered by a better than expected employment report in May. Since then better economic news continued to push the rates higher. The recent spike is attributed to Fed Chairman Ben Bernanke’s comment that Fed could begin tapering bond purchases later this year.

One of the biggest reasons why mortgage rates have been so low in last 4+ years is because Fed has been buying Mortgage Backed Securities (MBS) every month. The price of MBS as traded on Wall Street directly impacts mortgage rates. MBS prices have been kept artificially high by Fed buying those monthly. A higher MBS price means lower rates. Since Bernanke’s statement, MBS prices have been going down steeply with some days witnessing a 100 basis points drop.

Outlook for rates

The mortgage rates have reached a point of no return. We might see some days with a minor improvement, but overall the trend continues to be bearish. Do not expect any substantial improvement in rates. Rates in 3s are well and truly gone. We need to get used to rates in mid 4s and quite possibly even a 5% rate before the end of the year.

If you were thinking of refinancing and can still benefit from the current rate, do not wait any longer.  And if you were thinking of buying, it’s advisable to lock in a 30 year fixed rates in mid 4s while they are still available. Compared to historical rates, it’s still quite a deal.