Mortgage rates increased this week as many investors abandoned bonds to jump into the stock market rally. Is this a sign that low rates are about to become history?
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The benchmark 30-year fixed-rate mortgage rose to 3.77% from 3.66%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.29 discount and origination points. One year ago, the mortgage index stood at 4.12%; four weeks ago, it was 3.58%.
The benchmark 15-year fixed-rate mortgage rose to 3.03% from 2.94%. The benchmark 5/1 adjustable-rate mortgage rose to 2.78% from 2.71%.
This is the highest level the 30-year fixed has reached since September.
Weekly National Mortgage Survey
Results of Bankrate.com's Jan. 30, 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:||3.77%||3.03%||2.78%|
|Change from last week:||+0.11||+0.09||+0.07|
|Change from last week:||+$10.27||+$7.14||+$6.11|
Despite two consecutive weekly increases, rates remain low. But some mortgage professionals worry that the inevitable has started to happen.
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"This could be the end," says John Walsh, president of Total Mortgage Services in Milford, Conn. "I don't think rates will get back to where they once were. But there's always the unknown. Who knows what the next crisis will be?"
Local and global economic concerns, high unemployment, slow growth and any factors that make investors anxious are normally favorable to low rates. When investors become confident about the economy and the stock market performs well, they pull money out of safe investments such as mortgage bonds and U.S. Treasury bonds to bet on stocks.
That's exactly what happened in recent days when the Standard and Poor's 500 index closed above 1,500 for the first time in more than five years Friday.
"The big pension funds that are moving money from bonds to the stock market are causing rates to rise," says Bob Moulton, president of Americana Mortgage in Manhasset, N.Y.
Moulton doesn't seem as concerned about rising rates as other experts. Soon investors will get a reminder that the situation isn't as rosy as it seems and they may seek the safety of bonds once again.
"This is a normal minicycle," he says. "I think rates will settle down again."
Will investors' Confidence Keep Rates Up?
Investors got their first warning sign Wednesday, when the Commerce Department reported the economy shrank in the last quarter of 2012. The U.S. gross domestic product -- which represents the volume of goods and services produced -- fell at a 0.1% annual rate. It's the first drop since 2009. Some economists say it's not as bad as it sounds because the drop is mostly attributed to lower defense spending in the last quarter.
The Labor Department releases its January jobs data Friday. The report could either help or hurt rates, depending on how investors interpret it.
The Federal Reserve remains on a mission to keep rates low. Unless the jobs market "improves substantially," the Fed will continue to purchase $85 billion per month in Treasury and mortgage bonds, according to the announcement released by the Federal Open Market Committee after it wrapped up its two-day meeting Wednesday.
When the Fed pulls back on the assistance, there's no doubt rates will spike rapidly, mortgage professionals say.
So What's a Borrower to Do?
With so many outside forces influencing rates, borrowers should take advantage of the low rates while they can, says Derek Egeberg, a branch manager at Academy Mortgage in Yuma, Ariz.
"If you have a stable, secure job and you believe you can buy now, don't wait," he says. "The next two months are going to be critical."
The same goes for refinancers. You may think that a slight uptick in rates doesn't make that much of a difference on your monthly payments now, but before you know it, they may be too high for you to refinance.
"Rates are guaranteed to go up at some point," he says.