In what could have a dramatic impact on the housing industry’s steady recovery, U.S. mortgage rates rocketed upward this week, hitting their highest level in nearly two years.
The rise in rates was a reaction to the belief that the Federal Reserve will curb its massive stimulus policies — a buy-back program involving $85 billion worth of Treasury notes and mortgage- funded securities.
The average rate on a 30-year fixed loan spiked dramatically, rising to an average of 4.46 percent, up from 3.93 percent a week ago, according to the latest survey by mortgage buyer Freddie Mac. The average on a 30-year loan neared a historic low as recently as early May, but has now climbed to its highest level since July 2011. The 0.53 percentage point increase marks the 30-year fixed loan’s highest weekly increase in more than 26 years.
The average rate on a 15-year fixed mortgage also saw a sizeable increase, jumping to 3.5 percent from 3.04 percent a week ago, a gain of 0.46 percentage points. The 15-year fixed is now trending at its highest level since August 2011. It previously achieved a historic low in early May, when it dropped to 2.56 percent.
Cheap loans, particularly in regard to the 30-year fixed-rate mortgage, have kept home buying and refinancing desirable. Despite the sharp rate increase, there is optimism that buyer affordability will continue to fuel the market’s recovery.
“Higher mortgage rates may dampen some housing market activity, but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,” Freddie Mac Chief Economist Frank Nothaft said in a statement.
The average on a one-year hybrid adjustable-rate loan also rose, climbing to 2.66 percent from 2.57 percent. The average rate on a five-year adjustable-rate mortgage crossed the 3 percent threshold, moving to 3.08 percent from 2.79 percent. The fees for one-year and five-year hybrid adjustable-rate loans are now at 0.5 point and .07 point, respectively.
Looking ahead, there is a general consensus that mortgage rates are done climbing and will begin to level off in the coming weeks. In the latest Mortgage Rate Trend Index by Bankrate.com, 80 percent of the panelists surveyed believe rates will either go down or remain unchanged over the next week.
“After the surge in mortgage rates over the last week, I expect things to calm down a bit,” opines Michael Becker, WCS Funding Group mortgage banker. “While I think markets have overreacted to the (Federal Open Market Committee) statement and Chairman Ben Bernanke’s press conference, it’s going to take some disappointing economic news for the bonds to rally. Since I don’t see anything on the horizon over the next week that fits that bill, I expect mortgage rates to be steady over the next week.”