Mortgage rates retreat, Fed likely to keep rates low

Mortgage procrastinators rejoice! It looks like the recent trend of rising mortgage rates has taken the week off, giving homebuyers and refinancers an opportunity to lock in a more favorable rate.

The latest clues from the Federal Reserve indicate the era of low interest rates won’t end anytime soon.

Bump in mortgage rates spooks mortgage shoppers

Before this week, mortgage rates had risen for three consecutive weeks in Bankrate’s survey, and it appears mortgage borrowers took notice. The Mortgage Bankers Association reports that mortgage applications dropped 7.4 percent last week, in part because of that bump.

“Rates continued to increase last week, given increasing evidence that the Fed and other central banks are more likely to raise rates given the pickup in economic growth in their respective economies,” said Mike Fratantoni, chief economist at the MBA.

“Additionally, minutes from the June (policy) meeting showed clear plans to start reducing the size and scope of the Fed’s balance sheet and to continue raising the fed funds rate, a signal of confidence in the U.S. economy and job market,” Fratantoni adds.

Yellen to the rescue

Fortunately for borrowers, Federal Reserve Chair Janet Yellen may have addressed some of those concerns in her testimony on Capitol Hill last week.

Given that inflation is easing up and economic growth is squarely in the”meh” zone, the Fed chief said, the pace of interest rate increases going forward will be gradual, and the key federal funds rate “is likely to remain below levels that prevailed in previous decades.”

She also stressed that the Fed’s reduction of its ginormous balance sheet, which is likely to increase interest rates, will happen slowly through reduced reinvestment rather than sales of securities.

While mortgage rates don’t move in lockstep with the Fed’s moves, the market’s long-term expectations for inflation and interest rates play a role in determining the direction of mortgage rates. So mortgage shoppers may still be able to score some bargains before mortgage rates return to pre-recession levels.

Beige book blander than usual

The Fed’s latest Beige Book, which checks in on economic conditions in all the central bank’s districts throughout the U.S., has underlined the Fed’s message that inflation is modest and that economic growth is moderate at best. (In fact, the word “moderate” appears 88 times in the document — thrilling stuff.)

Mortgage rates fall

The benchmark 30-year fixed-rate mortgage fell this week to 4.13 percent from 4.16 percent, according to Bankrate’s weekly survey of large lenders. A year ago, it was 3.57 percent. Four weeks ago, the rate was 4.02 percent. The 30-year fixed-rate average for this week is 0.31 percentage points below the 52-week high of 4.44 percent, and is 0.59 percentage points above the 52-week low of 3.54 percent.

The 30-year fixed mortgages in this week&’s survey had an average total of 0.28 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 4.01 percent. This week’s rate is 0.12 percentage points higher than the 52-week average.

■ The 15-year fixed-rate mortgage fell to 3.33 percent from 3.37 percent.

■ The 5/1 adjustable-rate mortgage fell to 3.54 percent from 3.58 percent.

■ The 30-year fixed-rate jumbo mortgage rose to 4.11 percent from 4.10 percent.

At the current 30-year fixed rate, you’ll pay $484.94 each month for every $100,000 you borrow, down from $486.69 last week.

At the current 15-year fixed rate, you’ll pay $706.56 each month for every $100,000 you borrow, down from $708.52 last week.

At the current 5/1 ARM rate, you’ll pay $451.28 each month for every $100,000 you borrow, down from $453.52 last week.

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