Real Estate News      Jun 6, 2013

By: Neal J. Leitereg


As they have over the past month, mortgage rates continued to climb this week, a trend that is expected to continue.

The average rate on a 30-year fixed mortgage loan saw a significant increase for the second straight week, according to the latest survey by mortgage buyer Freddie Mac. After jumping 10 percentage points a week ago, the 30-year fixed saw another 10-point spike, climbing to 3.91% up from 3.81% a week ago. That is the highest the average on a 30-year fixed has been since 2012.

The average rate on a 15-year fixed mortgage loan is also on the rise. Previously at 2.98% a week ago, 15-year fixed-rate loans climbed to 3.03%. It is now nearly 50 percentage points higher than it was at the start of May, when a historic low of 2.56% was achieved.

Many analysts see a correlation between the rise in rates and a growing belief that the Federal Reserve will cut back on its bond-buying program. The Feds’ bond-buying program has been an important factor in keeping long-term mortgage rates near record lows, and the belief that the Feds may curve the program is what some, including Freddie Mac vice president and chief economist Frank Nothaft, point to as the cause for the recent spike.

“Continuing market concerns that the Federal Reserve may slow its bond purchases amid a strengthening economy added upward pressure on mortgage rates this week,” Nothaft said in a release.

“In its June 5th regional economic conditions report, known as the Beige Book, the Federal Reserve noted that overall economic activity increased at a modest to moderate pace over April and May in all its districts except for Dallas which indicated strong economic growth. In addition, pending home sales rose in April to its fastest pace since April 2010 and May’s consumer sentiment was revised upwards to its highest reading since July 2007.”

Additionally, the average rate on a five-year adjustable-rate mortgage also climbed, jumping from 2.66% to 2.74% week over week. The average rate on a one-year adjustable-rate loan increased slightly to 2.58%, up from 2.54% a week ago.

Whether rates continue their upward trend could depend on tomorrow’s Employment report, which details key employment figures like the unemployment rate and amount of jobs added or lost over the past month. Mortgage expert Al Bowman predicts that a positive Employment report could be what finally pushes mortgage rates down:

Analysts are expecting to see that the unemployment rate remained unchanged at 7.5% in May while approximately 159,000 jobs were added to the economy. A higher than expected unemployment rate and a much smaller number than the 159,000 new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates tomorrow. However, stronger than expected numbers may lead to another spike in mortgage rates, so proceed cautiously if still floating an interest rate. Look for it to be an active morning in the financial and mortgage markets.

Looking ahead, some see a decline in rates on the horizon. In the latest Mortgage Rate Trend Index by Bankrate.com, 82% of the mortgage experts polled believe rates will either stay the same or trend downward over the next week. “What happens to rates next week will depend on Friday’s employment report,” says Bankrate.com senior mortgage reporter Polyana da Costa. “If the employment numbers for May are more of the same, rates may not move much, but if they are worse than expected, rates could fall.”