Experts say Feds preparing market for rate increase

Probably.

That one word sent mortgage rates higher, lower and sideways this week. When the dust settled, rates ended up essentially unchanged compared with a week earlier. Rates were a tad lower across the board.

The crazy-making “probably” came Friday from Federal Reserve Chair Janet Yellen at Harvard University. According to news reports, Yellen said it “probably” would be appropriate for the Fed to raise rates “in the coming months.”

Multiple factors influence rates, but the Fed’s Fedspeak is currently paramount, says Michael Becker, branch manager at Sierra Pacific Mortgage in White Marsh, Maryland.

“All the movement is based on the Fed,” Becker says. “They’re really trying to prepare the markets for a June or July rate hike.”

The Fed doesn’t directly set mortgage rates. Rather, its Federal Open Market Committee tweaks the federal funds rate, which banks use to borrow from one another overnight.

The funds rate is closely watched as one indicator of the direction of rates consumers pay.

The Fed’s rate-setting committee is scheduled to hold five more two-day meetings this year. The summer dates are June 14-15 and July 26-27.

Mortgage rates this week

The benchmark 30-year fixed-rate mortgage fell to 3.81 percent from 3.82 percent, according to Bankrate’s survey of large lenders. A year ago, it was 4.03 percent. Four weeks ago, the rate was 3.77 percent.

The mortgages in this week’s survey had an average total of 0.18 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.97 percent. This week’s rate is 0.16 percentage points lower than the 52-week average.

The benchmark 15-year fixed-rate mortgage fell to 3.05 percent from 3.06 percent.

The benchmark 5/1 adjustable-rate mortgage fell to 3.22 percent from 3.23 percent.

The benchmark 30-year fixed-rate jumbo mortgage fell to 3.76 percent from 3.84 percent.

Brexit still a worry

Another rate-moving factor is Great Britain’s possible exit from the European Union. That might seem far across the pond from U.S. mortgage rates, but as Becker points out, markets today are interconnected.

Consequently, rate watchers are tuned in to the odds of the so-called “Brexit.”

A recent ICM/Guardian poll in Britain tilted slightly toward an exit, throwing the outcome of the June 23 referendum into greater doubt.

If Britain opts to leave the European Union, U.S. mortgage rates might go lower.

“In times of market turmoil, investors tend to go to perceived safe investments, and U.S. Treasuries are still one of the benchmark safety investments,” Becker says.

As money flows into Treasuries, prices rise, yields drops and mortgage rates tag along.

“It’s not a perfect correlation,” Becker adds, “but it’s pretty tight.”

Pending sales up

The prospect of higher rates and home prices has already goosed home sales.

The National Association of Realtors reported that pending sales rose 5.1 percent in April to the highest level since February 2006.

In a statement, NAR Chief Economist Lawrence Yun said more contracts were signed despite rising home prices and limited supplies of for-sale homes.