Mortgage rates barely changed this week, despite a rally in the stock market after Congress finally reached an agreement and passed legislation to avoid going over the "fiscal cliff."
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage fell to 3.58 percent from 3.59 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index stood at 4.18 percent; four weeks ago, it was 3.5 percent.
The benchmark 15-year fixed-rate mortgage rose to 2.88 percent from 2.87 percent. The benchmark 5/1 adjustable-rate mortgage fell to 2.76 percent from 2.77 percent.
Some mortgage professionals had expected rates to rise once the fiscal cliff debate was resolved because a fiscal policy agreement would inject confidence in the stock market. The last-minute deal was announced late Tuesday, and stocks surged when the markets opened Wednesday. But rates snoozed.
"Even with the big swing in the stock market, mortgage rates remain fairly unaffected," says Brett Sinnott, director of secondary marketing for CMG Group in San Ramon, Calif. "Most of this can be attributed to the fact that the (Federal Reserve) is still purchasing mortgage-backed securities and has stated it will continue to do so for the near future."
In a normal market, when the stock market does well, rates rise because investors tend to pull money out of safer investments such as mortgage and U.S. Treasury bonds to bet on stocks. But with the Fed printing $40 billion per month to buy mortgage bonds, this market isn't normal.
Another reason rates were almost unchanged after the announcement was that the fiscal cliff deal wasn't a surprise for the markets, and that minimized the potential effect on rates, some analysts say.
"I think the markets largely anticipated this outcome," says Bob Walters, chief economist for Quicken Loans. "For the most part, the can got kicked down the road again, so there were no huge surprises with the outcome."
Weekly national mortgage survey
Results of Bankrate.com's Jan. 2, 2013, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
|30-year fixed||15-year fixed||5-year ARM|
|This week's rate:||3.58%||2.88%||2.76%|
|Change from last week:||-0.01||+0.01||-0.01|
|Change from last week:||-$0.93||+$0.79||-$0.88|
But if the optimism in Wall Street continues, mortgage rates could still rise slightly in coming days, says Michael Becker, a mortgage banker at WCS Funding in Baltimore.
"You might see a pop in rates that will last for a week or two, but remember: You still have the jobs report Friday," Becker says. The U.S. Department of Labor releases its monthly employment report Jan. 4. If the report shows employment growth, the positive news could add to the upward pressure on rates, he says. A weak jobs report would help keep rates low.
Becker says that, as investors digest the latest news and realize the United States still faces an even bigger challenge in a month or two, fear will take over Wall Street again, and that could affect rates for better or worse.
The federal government hit its legal borrowing limit of about $16.4 trillion this week, but the Treasury has emergency measures to delay the problem for a month or two. As early as February, Congress will consider a White House request to raise the debt ceiling, and that debate could be more controversial than the fiscal cliff.
"It will be very interesting to see how the rest of the world reacts and what, if any, 'safe havens' they choose as we continue to figure out U.S. fiscal order," Becker says. "Fortunately for borrowers, the government is still the biggest investor in mortgage-backed (securities), and as long as the Fed remains a buyer, borrowers will have time to lock in these rates."
Does that mean borrowers should wait to refinance their mortgage or get a new mortgage?
Waiting makes "absolutely no sense," Walters says. "Rates have very little room to drop further, and yet we are one surprise away from a significant increase in mortgage rates. Those with rates that are higher than, say, 4.25 percent, should take advantage of rates that could very well be the lowest we'll see for generations."
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