Forecasts for rising mortgage rates in 2013 may have been too little, too late.
Mortgage rates jumped today to their highest levels in months, according to a flurry of reports. Recent forecasts for rising mortgage rates had put off the increases until at least later this year.
Mortgage experts quickly advised homebuyers and refinancing homeowners to move quickly on their transactions and lock in mortgage interest rates to prevent qualifying problems that could come with higher interest rates.
Rising home prices could also impact plans to buy.
For the week ending Jan. 29, the average fixed rate on 30-year conforming mortgages rose to 3.77 percent, resuming an upward trend in rates that had temporarily reversed last week. A week ago, the average 30-year FRM rate had fallen to 3.60, according to the Erate Interest Rate Update.
According to Erate’s report, rates are now nearly as high as they’ve been in the past six months.
San Jose-based mortgage lender Shashank Shekhar shopped four major lenders Monday for online published interest rates and found Bank of America and Citi Mortgage advertising annual percentage rates (APRs) on mortgages for more than 4 percent. Wells Fargo and Chase were up, but just under 4 percent. Quicken Loans came in with a 3.818 percent APR, plus 1.5 points.
Erate said the 30-year conforming rate ranged from 3.20 percent to 5.38 percent for the week, unchanged from a week ago. A year ago, the rate was 4.21 percent.
Meanwhile, the average rate for the 15-year fixed rate mortgage (FRM) also rose to 3 percent, up from 2.89 percent last week, according to Erate.com, a financial information publisher and interest rate tracker since 1999. The 15-year rate was also nearing a six-month high.
The high and low 15-year FRM rates were 4.49 percent and 2.43 percent, respectively. A year ago, the rate averaged 3.48 percent, according to Erate.
Contributing factors converge
Shekhar said a host of factors are contributing to the surge in rates.
• European debt crisis – Last week came with news of strong economic data in Germany and news that most banks have started paying back debts owed the European Central Bank (ECB).
• U.S. debt crisis – The temporary suspension of debt-limits help calm the stock market, where trading on the Dow Jones Industrial Average and S&P 500 soared near to all time highs. Fitch Ratings also said the temporary suspension of the U.S. debt limit removes the near-term risk to the nation’s credit rating.
• U.S. economy – Orders for durable goods rose faster than expected. Manufacturing appears to be stabilizing. Consumer spending is increasing.
“There is a tendency that when the economy is good and the financial market is doing well, mortgage rates tend to follow (by rising). People move money out of low-risk bonds and into higher-risk stocks,” says Jeff Hunt an editor with the Carmel, IN-based Eagles Rant, a news blog that covers the housing sector and other markets.
“The Federal Reserve had quantitative easing in play since last year, but sometime in December they started making sounds like they may wrap that up early this year,” Hunt added.
Housing recovery adds to upward pressure
The improving housing market is also contributing to higher mortgage rates.
The S&P/Case-Shiller Home Price Indices (HPI) revealed, for the 12-month period ending in November, 2012, home prices rose 4.5 percent for the 10-City Composite and 5.5 percent for the 20-City Composite, the greatest growth level in six years.
That means housing consumers quickly could get whacked with a one-two punch that knocks them out of the running for a home purchase or refinance. Higher home prices and higher mortgage rates combine to make housing less affordable.
“I don’t see rates improving from here. I would say, best-case scenario, they will remain stable. On the flip side, it could worsen further by another 0.125 percent to 0.25 percent. Lock your rate on the day when market improves. Since you may not be able to track mortgage backed securities on a daily basis, work with a loan officer who does. Floating (keeping your rate unlocked) is not recommended if you are closing your loan in next two to three weeks,” said Shekhar.
More benchmark rates rise, home equity rates little changed
Erate reported the average interest rate for the 30-year jumbo loan rise to 4.09 percent, for the week ending Jan. 29, up from 3.99 percent, a week earlier. The rate was 4.54 percent a year ago. The spread ranged from 3.43 percent, at the low end, to 6.33 percent at the high end.
Also up was the average interest rate for the 5/1 adjustable rate mortgage (ARM). It rose to 2.96 percent, up from 2.95 percent last week. The lowest 5/1 ARM rate this week was 2.45 percent and the high 4.10 percent, both also unchanged for weeks. The rate was 3.17 percent a year ago.
The average variable rate on home equity lines of credit (HELOC) came in unchanged at 4.66 percent. The rate averaged 4.72 percent a year ago. The lowest HELOC rate was 2.50 percent and the high, 8.75 percent, also unchanged.
The average FRM rate on 15-year home equity loans was 6.07 percent, down from 6.08 percent last week. Rates on 15-year home equity loans were unchanged from last week, ranging from 2.50 percent to 9.95 percent. The average was 6.53 percent a year ago.
Erate’s National APR (annual percentage rates) numbers are tallied from the interest rates of some 200 mortgage originators nationwide.