Historically low mortgage rates are now a thing of the past. Hey everyone, Gary Richetelli here, and today I’d like to respond to an article recently published by CNNMoney.
Interest rates for mortgages have been steadily rising over the last month, CNN says, and over the last week, the average rate on a 30-year fixed-rate mortgage jumped 10 percentage points to 3.91%. This is a jump from 3.3% in early May, according to mortgage giant Freddie Mac. Meanwhile, rates on a 15-year loan came to an average rate of 3.03%, up from 2.56% — a record low.
The article quotes Doug Duncan, chief economist at Freddie Mac as saying “It’s unlikely that rates will ever be that low again.”
And why are rates on the rise? CNN provides three reasons it believes the all-time low mortgage rates are no more.
First, the Federal Reserve plans to stop bolstering the housing market. According to the article, the fed has kept rates down by purchasing huge amounts of mortgage backed securities and treasury bonds (at a rate of $85 billion a month). The general understanding was that the fed would begin to ease off these purchases in late 2013, the article stated, but it now appears that this tightening could come as soon as September, according to Keith Gumbinger, vice president of HSH.com, a mortgage information company.
The second reason the article gives for increased rates is rather simple; the economy is not in the shape it was four years ago. Investors and money lenders now see the housing market as strengthening, and this strengthening has had a rising effect on mortgage rates.
Lastly, the article tells us that rates at 3.3% are unprecedentedly low. Prior to the 2008 recession, rates at 5.2% were considered the benchmark low rate. Historically, loans average at about 5.5% or higher. It follows, CNN argues, that a return to normalcy in the US economy will bring about a similar return of “normal” housing rates.
Although, with the unpredictability of the feds tightening policy, and the recent inconsistency of long term treasury rates, it’s near impossible to pinpoint exactly where mortgage rates will fall in the near future.