The end is nigh for low rates

Thursday, Feb. 25
Written 1 p.m. EST

RATE TRAJECTORY: Mortgage rates crept higher this week. The 30-year fixed went up 4 basis points in Bankrate's weekly survey, to 5.15 percent.

That's a small change. Rates have been remarkably steady lately. Four times in the last six weeks, the average rate on the 30-year fixed has been 5.15 percent. Such stability is unprecedented in Bankrate's weekly survey, conducted every Wednesday since 1985. (When Wednesday falls on a holiday, we do the survey on Tuesday or Thursday. Our plucky band even completed surveys when hurricanes knocked out our electricity and phone service in 2004 and 2005.)

The stability of mortgage rates is a testament to the Federal Reserve's guiding hand. There's no way that mortgage rates would be so tranquil if the Fed weren't buying nearly all of the mortgage-backed securities being produced.

In Bankrate's survey, the 30-year fixed averaged 5.15 percent in November, 5.15 percent in December, 5.19 percent in January, and 5.14 percent in February. If the Fed's goal was to keep the 30-year fixed at around 5 1/8 percent, the central bank couldn't have done a more effective job. The Fed hired a company called Wellington Management to trade mortgage-backed securities and keep rates steady. Someone at Wellington has performed a career-defining feat that's truly impressive.

That person's job description will change in about a month. The Fed is set to stop buying mortgage-backed securities by the end of March. Then rates will be set by a fearful market instead of by the Fed. Rates will rise and they will be volatile. If you can lock a mortgage rate by mid-March, I strongly urge you to do so. Don't wait until March 31. The Fed says it will stop buying mortgage bonds by the end of March -- not necessarily at the end of March.

If I were telling you this in person, you would see and hear how urgently I'm saying: Act soon if you can.

Let's talk numbers again. The Fed announced its mortgage-buying program on Nov. 25, 2008, and bought its first mortgage-backed securities on Jan. 5, 2009. What was going on with rates back then?

Let's look first at the effect of the Fed's announcement of its intentions. In the eight weeks before the Fed's Nov. 25, 2008, announcement, the 30-year fixed averaged 6.45 percent. In the eight weeks following the announcement, the 30-year fixed averaged 5.65 percent.

Now let's look at what happened after the Fed started buying mortgage-backed securities. The program seems to have gone into top gear in April 2009, when the 30-year fixed averaged 5.19 percent. A year before, in April 2008, the 30-year fixed averaged 6.08 percent.

Generally speaking, mortgage rates in 2009 were roughly three-quarters of a percentage point higher than they were at comparable times in 2008. The average for all of 2008 was 6.23 percent; for 2009, it was 5.38 percent.

What does this suggest to you?

Read more mortgage blogs.


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