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Mortgages blip upward as Fed enacts rate increase

Mortgage rates rose this week as the Federal Reserve finally raised the federal funds rate from its near-zero percent level, where it had been for exactly seven years.

Fed funds rate gets boost

The central bank’s Federal Open Market Committee increased the benchmark interest rate from a target range of 0 percent to 0.25 percent to 0.25 percent to 0.5 percent. However, the committee didn’t outline any subsequent rate hikes.

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the committee’s statement reads. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

There’s a “prevailing thought” that since the Fed has now implemented a rate hike that mortgage rates may fall rather than rise, says John Stearns, senior mortgage banker at American Fidelity Mortgage Services in Milwaukee.

“It will be interesting to see what happens,” he says.

A look at this week’s rates

• The benchmark 30-year fixed-rate mortgage rose to 4.09 percent from 4.06 percent, according to Bankrate’s Dec. 16 survey of large lenders. A year ago, it was 3.94 percent.

Four weeks ago, the rate was 4.09 percent. The mortgages in this week’s survey had an average total of 0.26 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 3.98 percent. This week’s rate is 0.11 percentage points higher than the 52-week average.

• The benchmark 15-year fixed-rate mortgage rose to 3.34 percent from 3.27 percent.

• The benchmark 30-year fixed-rate jumbo mortgage rose to 4.03 percent from 4.01 percent.

• The benchmark 5/1 adjustable-rate mortgage rose to 3.42 percent from 3.4 percent.

What about the housing market?

November housing starts came in at an annual rate of 1.17 million, which is 10.5 percent higher than October, according to data released Wednesday from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Last month’s rate is 16.5 percent above the same period in 2014.

“For the first 11 months of the year, compared to the same period in 2014, home construction is up 11 percent,” says Joel Naroff, president and chief economist at Naroff Economic Advisors in Holland, Pa. “That is pretty good.”

Homebuilder confidence is virtually flat this month, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index ticked down 1 point from November to 61.

Each of the three components of the index, which measure future sales expectations, current sales conditions and prospective buyer traffic, fell slightly.

Mortgage applications slid by 1.1 percent last week compared with the week prior, according to data from the Mortgage Bankers Association’s weekly survey. The unadjusted purchase index fell 7 percent but was 34 percent higher than the same week last year.

Potential buyers shouldn’t fret about the direction of mortgage rates now that the Fed has made its highly anticipated move, Stearns says.

“Whether they stay the same, go up a little bit, go down a little bit, I don’t see it as being a deal-breaker as far as buying a house is concerned,” he says.

However, borrowers with adjustable-rate mortgages should consider refinancing into a 30-year fixed loan, says Michael Becker, branch manager at Sierra Pacific Mortgage in White Marsh, Ma. ARMs are more sensitive to market changes than fixed-rate mortgages.

“They’re still in the low 4s … so look at maybe doing something like that,” he says.

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