Last week we learned that the Fed made a surprise decision not to begin scaling back its 85 billion dollar a month bond-buying program, as many had expected it to. The program is part of an overall stimulus package and was created to encourage lending and buying–helping people afford long-term loans with low interest rates. Over the past few years, the bond-buying program has sent mortgage rates way down (to historic levels). Back in May when the Fed discussed the idea of scaling back the program, rates for 30-year mortgages began to shoot up–a full percentage point!
So what was the initial result of last week’s announcement by the Fed?
Take a look at this graph from Freddie Mac. (I apologize if the numbers are too small to read.) It shows mortgage rates from September 20th, 2012 to last Thursday, the 19th (the day after the Fed’s announcement).
Each colored line represents rates for differing mortgages:
Blue: 30-year fixed rate
Red: 15-year fixed rate
Green: 5-year ARM
Purple: 1-year ARM
We know from previous posts on Jennifer Listens… that mortgage rates have been climbing all year. In fact, a year ago, on September 20th, rates for a 30-year fixed mortgage were 3.49%. Fast forward to this summer, and rates reached 4.5% and soon edged a bit higher for the end of August and half of September (waffling between 4.51% and 4.58%).
Then last Wednesday (9/18), Ben Bernanke, the Fed Chairman, made the announcement that the Fed was not going to begin tapering its bond-buying program just yet. By the next day (9/19), the rate for a 30-year mortgage had dropped back down to 4.5% (the week prior it was at 4.57%).
Some experts anticipated this would happen.
Bankrate.com had an article that said this: (Bolding is by me for highlighting purposes.)
“For now, borrowers have dodged another spike in rates. The Fed’s announcement might even cause rates to drop in coming days, says Paul Edelstein, director of financial economics at IHS Global Insight.
‘Mortgage rates should fall back — not massively, but to some extent,’ he says.
That doesn’t mean homebuyers and homeowners should wait for lower rates, mortgage professionals say.
Eventually, once the Fed lets the mortgage market and the economy start walking on their own, rates will probably head back to the 5 percent or 6 percent range, says Scott Schang, manager for Broadview Mortgage Katella in Orange, Calif.”
And here is a summary of what the Chief Economist Lawrence Yun of the National Association of Realtors (NAR) said last Thursday (as stated by NAR): (Again, bolding done by me.)
“NAR Chief Economist Lawrence Yun in a press conference Thursday said the Federal Reserve’s policy shift could slow mortgage-rate increases for the short-term, but broader pressures in the economy will continue to push rates up over the long-term. He is forecasting the interest rate for 30-year fixed-rate loans to be about 5 percent at the end of the year. They are currently averaging 4.5 percent. He also said that, in the short-term, home sales are picking up as households jump into the market now before mortgage rates rise further. At his press conference, he released existing-home sales data for August, and the numbers rose 1.7 percent to a seasonally adjusted annual rate of 5.48 million, from 5.39 million in July. At that level, home sales are at their highest since early 2007.”
So, if predictions continue to be correct, it seems that interest rates will begin to climb again and we will likely see the rates go into the 5% and/or 6% territory.
I leave you today with two quotes I read on a KCM blog. The first comes from Bankrate.com by a mortgage planner named Ed Conarchy. He said:
“Remember that rates go up like a rocket and fall like a feather.”
And finally, from Bankrate.com itself:
“Grab the gift before it’s gone!”