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Will Interest Rates Be Above 4 Percent By Mid-June?

by UrbanTurf Staff

Will Interest Rates Be Above 4 Percent By Mid-June?: Figure 1
The path of rates since January 2010.

For the past 18 months, the average long-term interest rate reported by Freddie Mac each week has been below 4 percent. In fact, sub-4 percent rates have become so common that the idea that two years ago people marveled at rates dipping below 4 percent seems almost humorous.

However, recent indicators point to rates going back above 4 percent in the very near future, and not returning to historic lows for quite some time.

Yesterday, it was reported that the average on a 30-year fixed-rate mortgage had leapt to 3.81 percent from 3.59 percent the previous week and 3.42 percent two weeks prior. Since the beginning of the month, rates have risen almost 50 basis points.

There are a number of reasons that rates are now increasing, most notably unemployment numbers are going down, economic indicators are going up, housing starts are increasing, durable goods orders are on the rise, and both global and U.S. stocks have advanced substantially.

Also, Federal Reserve Chairman Ben Bernanke’s comments from a week ago indicated the government will be tapering off their Quantitative Easing strategy. Right now, the government is actively participating in purchasing long-term mortgage-backed securities to keep interest rates artificially low.

“The trend has been that interest rates have drifted lower very slowly,” BB&T’s Kevin Connelly told UrbanTurf. “But when the tide turns due to economic indicators or news like Bernanke’s testimony, that causes a knee jerk reaction and suddenly interest rates jump.”

So does all this point to the possibility that rates could be above 4 percent by next Thursday’s Freddie Mac report? For many borrowers, even those with excellent credit, rates have already crossed that benchmark.

“Right now, it appears most lenders are priced at 3.875 percent for loans under $417,000, with loans over that amount already at 4 percent,” John Downs of Caliber Funding said. “This is partly due to the market sell-off but also because of pricing confusion. When banks are confused, they often err on the side of caution and show elevated rates until the market stabilizes. In my opinion, rates will most likely plateau until the May jobs report, which will be published on June 7th.”

Readers, what do you think? Are rates set to jump back above 4 percent in the next few weeks?

See other articles related to: mortgage rates

This article originally published at http://dc.urbanturf.com/articles/blog/mortgage_rates_leap_up._here_is_why_they_may_remain_high/7130

4 Comments

  1. swester said at 2:53 pm on Friday May 31, 2013:
    Is that a bubble I smell? Why yes, I do believe it is.
  1. brownout said at 4:36 pm on Friday May 31, 2013:
    I think housing fundamentals are based more on price-to-rent ratios, which are still actually pretty solid. So this is unlikely to be a bubble.
  1. Daniel said at 4:37 pm on Friday May 31, 2013:
    Given what is happening with the economy, I think we are headed for 4% or higher as early as next week. Still, historically, rates will be super low.
  1. mona said at 6:42 pm on Friday May 31, 2013:
    My very first house the interest rate was 8%. People have now clue how low even a 6% rate actually is.

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