If you’ve been actively looking to buy a home in the past few months, you probably noticed a significant change recently: Mortgage interest rates have gone up — way up. At the end of May, local lenders were quoting a rate of approximately 3.875 percent for a 30-year fixed rate loan; today, that same loan has a rate of about 4.625 percent.
Why? According to a recent Inman News article, you can blame the Federal Reserve.
Rates started climbing slowly in mid-May on speculation that the Federal Reserve was preparing to trim the $85 billion-per-month bond purchase program that has long kept a lid on rates, says Bankrate.com’s Polyana da Costa: “When the Federal Open Market Committee wrapped up its recent meeting, many observers expected the Fed to calm the markets. Instead, the Fed did the opposite.”
Consequently, mortgage rates rose by their largest weekly margin since 1987, according to Freddie Mac.
It was Fed chief Bernanke’s remarks on June 19th about the possible timing of reduced bond purchases that got the financial world’s attention: First, Treasury bond yields jumped over the week, and then mortgage rates followed, said Frank Nothaft, vice president and chief economist at Freddie Mac, in a statement. He indicated that the Fed may moderate the pace of its buying later this year and end the purchases around the middle of 2014.
“Higher mortgage rates may dampen some housing market activity, but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,” Nothaft stated. “For instance, existing-home sales in May rose to its strongest pace since November 2009, and new-home sales were the most seen since July 2008. In addition, the 12-month growth in the S&P/Case-Shiller 20-city home price index for April of 12.1 percent was the largest since April 2006.”
What does all this mean for you? If you’re considering buying a home and haven’t spoken to your lender in the past few weeks, it’s time to touch base with them. One other thing to keep in mind: Even though the rates have increased, they’re still at historic lows.
