Mortgage interest rates have ticked up for three of the past four weeks, and while big increases are unlikely, further drops are, too.
The average for a 30-year, fixed-rate mortgage hit 3.53% this week, marking the first time rates pushed above 3.5% in more than three months, mortgage giant Freddie Mac reported Thursday.
“I do think that perhaps the all-time low is behind us,” says Freddie’s chief economist, Frank Nothaft.
There’s no point to dilly-dally waiting for lower rates if someone is considering refinancing their home
That was set in November when 3.31% was the average for a 30-year, fixed rate loan, according to Freddie Mac’s weekly mortgage rate surveys.
For the rest of the year, Nothaft expects rates to gradually move higher, ending the year at about 3.75% and then moving above 4% sometime next year.
“There’s no point to dilly-dally” to wait for lower rates if someone is considering refinancing their home, Nothaft says.
Rising rates will affect homeowners looking to refinance more than they’ll affect home shoppers, says Jed Kolko, chief economist with real estate website Trulia.
That’s because refinancing is mainly an interest-rate-driven decision, while home purchases have more to do with jobs and lifestyle changes, he said. Even though they’re up, rates are still near historic lows.
Along with an improving economy, rates have edged up, given less demand for “safe haven investments” such as bonds since Congress partly averted the so-called fiscal cliff of tax increases and spending cuts on Jan. 1, says Greg McBride, senior financial analyst for Bankrate.com.
McBride said mortgage interest rates may dip below current levels on occasion. He, too, expects them to hover between 3.5% and 4% for most of this year. That assumes no big economic shocks to the U.S. economy.
Except for a few weeks, mortgage rates have been below 4% for the past 14 months.
The low rates have helped the housing market, which is showing signs of strengthening. Home prices were up 5.5% in November year-over-year, Standard & Poor’s Case-Shiller data showed earlier this week. New and existing home sales are also up. That also is helping the overall economy.
“If the economy is getting better, slightly higher interest rates are a natural occurrence,” says Keith Gumbinger, vice president of mortgage tracker HSH.com. “But there’s no reason to believe that rates are headed upward in a straight line.”
But a slow-growing economy will work to keep a lid on them, he says. The U.S. economy is forecast to grow just 2% this year, and it actually shrank at an annual rate of 0.1% in the fourth quarter of last year, the government said Wednesday.
The Federal Reserve has also said that it plans to continue buying $40 billion a month in mortgage-backed securities. Its high-volume purchases bring down yields on those securities, which influence mortgage rates.
“Until the economy strengthens and the job market picks up, we won’t see rapidly rising interest rates,” says Doug Lebda, CEO of LendingTree, an online lender exchange.
Lenders also have room to keep rates down by shrinking their profit margins, Lebda says. They may do that if loan volume drops.
SOURCE: Freddie Mac / USA Today
Home values are inching up while home sales remain strong. Some home price indexes are showing values up 5.6 percent and 4.3 percent from year ago levels, according to the Scorecard.
Lenders must prove that income and assets are sufficient to repay the loan (this applies to jumbo loans as well).
On Jan. 1 both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.”
Many housing experts once predicted that the shadow inventory would cause overall inventories to skyrocket and place downward pressure on home prices. Yet an increase in short sales and loan modifications have helped to lessen the impact, analysts say.
Tax rates would remain the same for most households and mortgage cancellation relief is extended in a budget package passed by the U.S. Senate early this morning to avert the so-called fiscal cliff. The House today could take up the bill, which NAR has been monitoring closely because the fiscal cliff’s automatic tax increases and federal spending cuts involve programs important to real estate and impact household wealth. Based on what the House does, the provisions in the Senate bill could change in the final bill.
