Mortgage market exhales in relief, and rates drop

Homebuyers and refinancers have received a belated gift from the Fed: Mortgage rates have fallen because the Federal Reserve reassured bond investors that it won’t raise short-term interest rates aggressively.

This decline in mortgage interest rates might not last because, in the long run, rates are trending upward. If you’re ready to get a mortgage, this is a good time to do it.

Why rates rose and fell

Early last week, mortgage rates went up more than they normally would have. Why? Because investors were worried what the Fed would say later in the week, at the conclusion of the central bank’s scheduled meeting.

Like most Fed-watchers, mortgage bond investors predicted that the monetary policy committee would signal that it was staying with its plan to raise short-term interest rates three times this year.

That prediction turned out to be correct. But there was an outside chance the Fed would hint that it wanted to raise short-term rates four times in 2017.

Given the possibility the Fed might accelerate its rate-raising campaign, mortgage rates rose higher than they otherwise would have.

Once the Fed signaled that it would raise short-term rates gradually and patiently, mortgage rates immediately dropped.

It was as if the mortgage market had been holding its breath and then exhaled in relief. As rates fell, homebuyers applied for mortgages.

Mortgage rates this week

The benchmark 30-year fixed-rate mortgage dropped this week to an average 4.29 percent from 4.44 percent, according to Bankrate’s weekly survey of large lenders. A year ago, it was 3.9 percent. Four weeks ago, the rate was 4.29 percent.

The mortgages in this week’s survey had an average total of 0.24 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.88 percent. This week’s rate is 0.41 percentage points higher than the 52-week average.

■ The 15-year fixed-rate mortgage fell to an average 3.49 percent, from 3.64 percent.

■ The 5/1 adjustable-rate mortgage slid to 3.44 percent, on average, from 3.6 percent.

■ The 30-year fixed-rate jumbo mortgage fell to an average 4.22 percent, from 4.43 percent.

An upward trend

This week’s decline in rates is good news for borrowers. It happened because the Fed didn’t surprise anyone, and it indicated that it still plans to raise rates gradually and patiently.

But it does still plan to keep hiking short-term rates this year, and mortgages are likely to rise, too. Not every week, but in the long run.

The question is by how much. The bottom line is that the sooner you apply for a mortgage the better as rates rise. The Mortgage Bankers Association predicts that the 30-year fixed will rise about half a percentage point in 2017. Freddie Mac predicts a rise of about a quarter of a percentage point. Fannie Mae predicts that rates will rise just a little and essentially will be flat for most of 2017.