Mortgage rates rose this week as optimistic investors were reminded that eventually, the Federal Reserve will have to stop buying mortgage bonds to keep rates low.
The benchmark 30-year fixed-rate mortgage rose to 3.67% from 3.58%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index stood at 4.18%; four weeks ago, it was 3.52%.
This is the highest rate for the 30-year fixed-rate mortgage in nearly four months. The last time it was higher was the Sept. 19, 2012, survey, when the 30-year fixed averaged 3.7%.
The benchmark 15-year fixed-rate mortgage rose to 2.92% from 2.88%. The benchmark 5/1 adjustable-rate mortgage rose to 2.77% from 2.76%.
Weekly national mortgage survey
Results of Bankrate.com's Jan. 9, 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: 3.67% 2.92% 2.77%
Change from last week: +0.09 +0.04 +0.01
Monthly payment: $756.67 $1,133.12 $675.35
Change from last week: +$8.36 +$3.16 +$0.88
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Will rates keep rising?
Mortgage rates reached a four-month high last week, but it's unlikely that they will keep climbing, says Dan Green, a loan officer for Waterstone Mortgage in Cincinnati. But the spike was short-lived.
"Rates have slowly edged back," he says. "Wall Street is already in search of its next fiscal crisis. As soon as one is identified, rates will resume their downward path."
The next fiscal crisis is already on its way. The government is running out of time to raise the nation's debt ceiling. The federal government has reached its borrowing limit of $16.4 trillion and could begin defaulting on its debt in late February or early March if Congress doesn't agree to raise the cap.
Could end of QE3 bring higher rates?
Regardless of how the next crisis is perceived by investors, the main driving force behind the low rates that borrowers are getting remains the Fed's quantitative easing program, known as QE3.
"Rates will stay low up until the point that the Fed stops purchasing mortgage bonds," says Derek Egeberg, a branch manager at Academy Mortgage in Yuma, Ariz.
The Fed has been printing $85 billion per month and buying Treasury notes and mortgage bonds in an effort to keep rates low to boost the economy.
But some Fed members say the Fed should end the stimulus before the end of this year, according to minutes of the last Federal Open Market Committee meeting, released last week.
When the FOMC last met, in December, the Fed said it would keep its key interest rate low until unemployment dropped below 6.5%. The unemployment rate has been stuck at 7.8% for three months, shows the December employment report released by the Department of Labor last week.
The housing market and the economy aren't ready for higher mortgage rates with such a high level of unemployment, Egeberg says. Low rates alone won't fix the housing market, but they have been a crucial help, say housing advocates.
While consumer confidence in the housing sector continues to improve, many potential buyers remain concerned about the economy, shows a recent survey by Fannie Mae.
"Despite continued strengthening in the housing market, consumers' concerns over the 'fiscal cliff' and debt ceiling have caused considerable volatility in their perceptions of the larger economy," says Doug Duncan, Fannie's senior vice president and chief economist. "This uncertainty seems to be prompting a growing share of consumers to expect their personal finances to worsen and may contribute to weaker near-term economic growth."