Mortgage rates retreated slightly this week as the Federal Reserve tried to calm financial markets. But that's little consolation for homebuyers and potential refinancers who have watched rates jump by more than a percentage point in recent weeks.
The benchmark 30-year fixed-rate mortgage fell to 4.56%, compared to 4.66% last week, 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, that rate stood at 3.78%. Four weeks ago, it was 4.12%.
Before the recent increases, the benchmark rate on the 30-year fixed was near record lows at 3.52% on May 1.
The benchmark 15-year fixed-rate mortgage fell to 3.65% this week, compared with 3.75% last week. The benchmark 5/1 adjustable-rate mortgage fell to 3.56% from 3.63%. The benchmark 30-year fixed-rate jumbo mortgage fell to 4.71% from 4.82%.
Weekly national mortgage survey
Results of Bankrate.com's July 17, 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: 4.56% 3.65% 3.56%
Change from last week: -0.1 -0.1 -0.07
Monthly payment: $841.92 $1,191.75 $746.46
Change from last week: -$9.87 -$8.17 -$6.49
Don't celebrate just yet
The small dip doesn't necessarily mean rates will continue to fall until they reach the low levels seen earlier this year, says Brett Sinnott, director of secondary marketing for CMG Mortgage Group in San Ramon, Calif.
"They are starting to fall back a little bit as we are past the initial panic," Sinnott says. "But I think rates are going to stay at these levels at least in the near term."
The "panic" Sinnott refers to started in late May, when Fed Chairman Ben Bernanke said the Fed was preparing to reduce the pace of its bond-purchasing program later this year. The Fed spends about $85 billion a month in the purchases of mortgage-backed securities and Treasury bonds in this quantitative easing program, known as QE3. These purchases have helped keep a lid on mortgage rates.
Is the Fed trying to undo the damage?
Bernanke tried to calm the markets this week when he told Congress that the Fed remains committed to providing economic stimulus until the economy needs it and is flexible on the timeline to trim the program.
"I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course," Bernanke told the House of Representatives Financial Services Committee on Wednesday in prepared remarks. "We intend to continue our purchases until a substantial improvement in the labor market outlook has been realized."
In addition, the Fed says even after the purchases end, it will continue to reinvest proceeds from its maturing mortgage and Treasury bonds to keep the downward pressure on longer-term interest rates and to support mortgage markets.
If economic growth remains steady and the Fed reduces its stimulus program, borrowers shouldn't hold their breaths for lower rates, mortgage experts say.
"I think over the next month or two, rates are going to stay flat or go up slightly as the economy improves," says Rob Nunziata, president of FBC Mortgage in Orlando, Fla.
Less competition for buyers as rates rise
Rising rates have started to get in the way of homebuyers in high-cost areas such as San Francisco, Sinnott says. A $400,000 mortgage for a homebuyer with excellent credit costs about $200 more than it did about two months ago.
But to buyers who have a bit of room in their budgets, there's a silver lining: Higher rates will mean less competition when they shop for homes.
"I've seen Realtors who went from having 30 offers on a house down to four offers," Sinnott says.
The increase in rates also has turned off some investors who were getting loans to buy homes because rates were at bottom.
"I think these rates have scared away some of the investors," Nunziata says.
That's good news for those who are on the market for a home, even if rates are a little higher than they expected.
"Even though rates are higher than they were a few weeks ago, they are still very good," he adds.