Mortgage rates jumped for the second week in a row after the Federal Reserve unveiled a new round of bond purchases to keep rates low.
The benchmark 30-year fixed-rate mortgage rose to 3.62 percent from 3.52 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.31 discount and origination points. One year ago, the mortgage index stood at 4.2 percent; four weeks ago, it was 3.53 percent.
The benchmark 15-year fixed-rate mortgage rose to 2.89 percent from 2.85 percent. The benchmark 5/1 adjustable-rate mortgage rose to 2.78 percent from 2.74 percent.
Weekly national mortgage survey
Results of Bankrate.com's Dec. 19, 2012, 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:||3.62%||2.89%||2.78%|
|Change from last week:||+0.10||+0.04||+0.04|
|Change from last week:||+$9.25||+$3.16||+$3.50|
What went wrong?
In theory, when the Federal Reserve announces new economic stimulus involving the purchase of mortgage bonds or Treasury bonds, mortgage rates tend to fall. But that wasn't the case last week as the Fed pledged to buy an additional $45 billion worth of bonds per month.
"Rates are higher every day since the (Fed) announcement," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati. "(Federal Housing Administration) mortgage rates are getting hit worse than conforming ones."
The Fed announcement didn't really push rates up. Wall Street's positive thinking did, Green says.
"There's a lot of hope on Wall Street -- hope for the economy, hope for a 'fiscal cliff' agreement, hope for housing. Hope is bad for mortgage rates," he says.
The perception that the jobs market, the economy and the housing market are improving makes investors confident, he says. Confident investors tend to take money out of the bond markets to seek riskier investments such as stock.
Based on how well the stock market has performed in the past few days, it seems that many investors are betting that politicians in Washington, D.C., will come to an agreement to avert the so-called fiscal cliff. The expectation contributes to higher rates.
"We are seeing money move from the bond market into the equities market, says Derek Egeberg, a branch manager at Academy Mortgage in Yuma, Ariz. "That's pushing mortgage rates slightly higher."
The upward trend probably won't last long, mortgage specialists say. Soon, other economic news will remind investors that the economy still has a long way to go before it is fully recovered.
On Tuesday, Fannie Mae economist Doug Duncan said the pace of economic recovery seen in the third quarter of the year has ebbed, and growth in the fourth quarter of this year has been sluggish.
"With data pointing to soft economic conditions and the fiscal policy debate hanging in the balance, we expect growth in the current quarter to moderate from the pace seen last quarter," Duncan says.
Borrowers: Thank the Fed and act
With or without fiscal cliff concerns, if it weren't for the Fed's bond-buying programs, mortgage rates would be significantly higher than they are today, Egeberg says.
"The additional bond buying is simply the Fed grasping at keeping rates where they are," he says.
While the recent increase in rates shouldn't be reason for concern, it should serve as a warning sign to potential borrowers that the Fed won't be able to hold rates low forever.
"The low-rate environment is artificial, and it's not sustainable in the long term," Egeberg says. "If you know this is artificially created and you can take advantage of it while it's here, I can't see why you would wait to refinance or buy. Of course, if you are buying, it has to be right for the individual, but if you are ready to do it, don't wait."
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