Bye, QE3, and hello higher mortgage rates

Mortgage rates inched up this week after stock and bond activity normalized, and as the Federal Reserve ended its third round of economic stimulus, as anticipated.

30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage rose to 4.1 percent from 4.05 percent last week, according to the national survey of large lenders. One year ago, that rate was 4.27 percent. Four weeks ago, it was 4.27 percent again. The mortgages in this week's survey had an average total of 0.23 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage rose to 3.27 percent from 3.21 percent.
  • The benchmark 5/1 adjustable-rate mortgage rose to 3.17 percent from 3.14 percent.
  • The benchmark 30-year fixed-rate jumbo rose to 4.11 percent from 4.1 percent.

Weekly national mortgage survey

Results of's Oct. 29, 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:
Change from last week:+0.05+0.06+0.03
Monthly payment:$797.28$1,161.01$710.87
Change from last week:+$4.78+$4.81+$2.70

"Rates are only slightly higher than last week," says David Cary, a mortgage broker with C2 Financial Corp. in California, "due to a recovery in the stock market."

Stocks back to normal

The stock market regained most of the ground it lost two weeks ago when it took a dive as investors got jittery after economic data came in weaker than expected and concerns intensified over Europe's economic health. Money poured into bonds, sending yields on Treasuries down. Mortgage rates tend to track the yield on the 10-year Treasury note.

Featured Rates

"That was all volatility -- the equity sell-off and the rush into fixed income. There's the recognition that was just a short-term correction," says Joel Naroff, president of Naroff Economic Advisors based in Holland, Pennsylvania.

Bye-bye, QE3

The Federal Reserve's policymaking group appeared unconcerned about the recent data, saying on Wednesday that the job market "improved somewhat further," citing "solid job gains and a lower unemployment rate" in its statement.

The Federal Open Market Committee moved forward as scheduled with ending its two-year quantitative easing program, where the central bank buys Treasuries and mortgage-backed securities to keep interest rates low. The group maintained its expectation to keep the federal funds rate, a key benchmark rate for consumer and business loans, low for a "considerable time."

"We expected them to end QE, but what was more important was how the Fed interpreted the weaker data," says Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors. "The expectation has been that they will begin raising rates sometime next summer."

A need for more data

That view could change if economic data comes in weaker or better than expected. So far, the housing market is showing slow growth, which the Fed acknowledged in its statement, despite such low mortgage rates.

New home sales were up 0.2 percent in September, but the Commerce Department made a huge downward revision to August sales. Pending sales of existing homes increased 0.3 percent last month, but that fell short of the 0.8 percent that economists had been expecting. The widely watched Standard & Poor's/Case-Shiller home price index showed decelerating price gains in August.

Bad news for big borrowers

The rise in rates appeared to suppress demand for mortgages this week. The volume for mortgage applications fell 6.6 percent versus a week ago, according to the Mortgage Bankers Association. That included a 5 percent decline in purchase applications and a 7 percent decrease in refinances, due largely to 41 percent drop in applications from jumbo mortgage borrowers.

"If rates are a little bit higher, sure, some people may not go forward or can't go forward," Cary says. "But the reality is we're still hovering near all-time lows."


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