Are we still heading toward 5% mortgages?

Prospective buyers who have been shying away from the housing market due to rising rates may have reason to start shopping again.

On Wednesday, the Federal Reserve surprised market watchers when it announced that it would not start tapering its purchases of mortgage-backed securities and Treasury bonds.

Mortgage rates have risen significantly amid concerns that the Fed would cut back on its $85 billion a month bond-buying program. Rates on a 30-year fixed mortgage are currently averaging about 4.5%, up from 3.35% in early May. That rate increase has meant an extra $132 a month in payments for a homebuyer with a $200,000 30-year loan.

But now that the Fed has said it will continue to purchase the bonds, rates will likely retrace some of those gains.

Now, we do have some space for rates to fall, I don’t expect a plummet, just a drop of 0.1 percentage points or so over the next week or two.

The day after the Fed’s announcement, Freddie Mac reported that rates on 30-year fixed-rate loans fell from 4.57% to 4.5% over the past week. Freddie Mac’s chief economist, Frank Nothaft, said rates were reacting to the same economic trends that influenced the Fed’s decision.

Among them: slowing growth in retail sales and industrial production and the lowest reading in consumer sentiment since April. He also noted tighter financial conditions, including the sharp increase in mortgage rates in recent months.

Should the economy gain more momentum, however, fears that the Fed will taper off its bond purchases will most certainly resurface and rates will move higher again, he said.

Nothaft expects rates to hit about 5% by mid-2014. That’s an increase of less than $24 a month for every $100,000 borrowed — enough to weed out borrowers who are struggling to afford homes but not enough to impact overall demand.

Despite recent increases, rates are still low by historical standards. During the housing boom years, they typically ranged between 6% and 7%.

And higher rates should prompt some banks to ease up on their lending standards, helping more people to buy homes.

Rates will be slightly higher next year but not enough to derail the housing market recovery.

Advertisements

About thenoelteam

As a Broker with RE/MAX Alliance, I work energetically for my clients whether they are a buyer or seller. I help you achieve your goal of owning a home or getting the best price for your home in the shortest time possible. After graduating from UCLA with a degree in communications and finance, I was licensed in 1977 and since then I have sold over 3600 properties amounting to over $1 billion in sales. I currently rank in the top 10 in home sales for Colorado. I offer the same quality of service and superior communication to all clients, ranging from starter homes to multi-million dollar estates, commercial and income properties, relocations and foreclosures My goal is to provide you with the best representation possible whether you are buying or selling. Over the years, one of the things that I've discovered is that there is a difference in the way individual Realtors do business. For me, I have always felt that honesty and personal integrity are the foundations upon which a successful business and career are built and sustained. I have an extensive background and knowledge base in real estate, including financing, which has enabled me to provide outstanding, quality advice and service not found with many agents today. My commitment to communication creates a positive relationship between my client and myself that results in a successful property sale or purchase. My passion for real estate, commitment to my clients and personal integrity has helped me to achieve success placing me in the top 1% of all brokers in nationwide. In my career, I have earned a number of awards and received considerable recognition for my success but the most significant recognition comes from the fact that over 75% of my business comes from past clients. My success is a true measure of my client satisfaction.
This entry was posted in For Home Buyers and Sellers and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s