mortgage

Mortgage rates rise after so-so jobs data

Mortgage rates crept higher this week, even after a disappointing jobs report. However, rates will likely remain low for the foreseeable future.

30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage rose to 4.27 percent from 4.24 percent last week, according to the Bankrate.com national survey of large lenders. One year ago, that rate was 4.71 percent. Four weeks ago, it was 4.27 percent. The mortgages in this week's survey had an average total of 0.3 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage rose to 3.42 percent from 3.37 percent.
  • The benchmark 5/1 adjustable-rate mortgage rose to 3.29 percent from 3.25 percent.
  • The benchmark 30-year fixed-rate jumbo rose to 4.35 percent from 4.29 percent.

Weekly national mortgage survey

Results of Bankrate.com's Sept. 10, 2014, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:4.273.423.29
Change from last week:+0.03+0.05+0.04
Monthly payment:$813.63$1,173.08$721.72
Change from last week:+$2.89+$4.03+$3.63

Rates mostly shrugged off the latest jobs report on Sept. 5, which missed expectations. Employers added only 142,000 jobs in August, the lowest level this year and well below the 225,000 new jobs that economists had expected. Often, such tepid results would prompt investors to pour money into Treasuries, lowering interest rates for mortgages. That didn't happen.

Some economists believe the number, likely an anomaly, will later be revised upward and pointed to the fact that job growth has averaged 212,000 per month for the past 12 months. The unemployment rate also declined to 6.1 percent from 6.2 percent.

Featured Rates

The foreign factor

Another factor keeping rates from rising too much is Europe's dismal economic performance. Germany's gross domestic product contracted in the second quarter. Italy is in recession. And the European Central Bank -- the equivalent of the U.S. Federal Reserve -- has announced unprecedented stimulus, including negative deposit rates and the purchase of 500 billion euros in asset-backed securities to boost the economy.

"Europe is a mess and has been for a long time," says John Stearns, a senior mortgage banker with American Fidelity Mortgage near Milwaukee. "That offsets any good news going on over here."

International investors, seeking a safe haven for their money, invariably look to U.S. Treasuries for a secure investment when other economies aren't faring well. This pushes up Treasury prices, which depresses the yield. Mortgage rates, which tend to track the 10-year Treasury yield, then follow.

Longer term: The Fed

The latest jobs report also backed up the view that the Federal Reserve wouldn't raise the federal funds rate -- a benchmark rate that affects business and consumer loans, including mortgages -- earlier than expected. However, the central bank is on pace to end its third round of quantitative easing, or QE3, in October, a program that has kept a lid on rates since 2008.

"That's the single largest possible impact on rates, but people have known this is coming for a long time," says Dave Norris, president and chief operating office of loanDepot.com. The secondary market, where investors buy assets backed by mortgages, has changed, too, he says.

"When the Fed was buying those assets, the market was twice the size. It has consolidated a lot since, and QE3 will end with no real change in mortgage rates," he says.

What should a borrower do?

Stearns expects rates to stay low through the fall and winter as a way for lenders to entice people to buy during the traditionally slow time of year. Already, demand is falling off.

The volume of loan applications dropped by 7.2 percent this week from the prior week, to the lowest level in almost 14 years, according to the Mortgage Bankers Association.

Stearns' advice is to lock any mortgage rate if you plan on closing in a week or two. "Anything longer than that, float," he says. "I don't see rates going up anytime soon."

Pava Leyrer, manager of training and implementation for Northern Mortgage Services in Grandville, Michigan, and Norris both recommend a rate lock to keep the guessing and stress out of an already stressful situation, especially for those borrowers who have a payment that is at the upper end of their budget. One small move could mean a larger monthly payment or could require more cash at the table to close.

"If the market takes a dramatic change lower, most lenders will work with you if you're in a lock," says Leyrer. "You're hedged each way. So move on and get your loan done."

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