Mortgage rates enjoy a long vacation
Mortgage rates paused this week as investors digested some mixed economic news while keeping their eyes on the Fed to try to figure when interest rates will rise.
30 year fixed rate mortgage – 3 month trend
- The benchmark 30-year fixed-rate mortgage fell to 4.3 percent from 4.31 percent last week, according to the Bankrate.com national survey of large lenders. One year ago, that rate was 4.56 percent. Four weeks ago, it was 4.33 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 fell to 3.4 percent from 3.41 percent last week.
- The benchmark 5/1 adjustable-rate mortgage was 3.33 percent, unchanged from last week.
- The benchmark 30-year fixed-rate jumbo rose to 4.37 percent from 4.33 percent.
Why have rates been asleep for so long?
Rates might fluctuate in coming weeks, but they are likely to stay near the bottom at least through the summer, says Pava Leyrer, director of training for Northern Mortgage Services in Grandville, Michigan.
"The economic news that we are seeing is not stable," she says. "Maybe after the summer they might be and rates might creep up a little, but I'm hoping they will stay under 5 (percent)."
It's somewhat surprising that rates have stayed this low for so long, when many experts expected them to rise steadily this year.
"Everything that moves the market these days seems to move the market (and rates) for an hour or so and then it comes back down," says Michael Becker, a mortgage banker for WCS Funding Group in Baltimore.
A confusing economy
The mixed signals investors have been getting from recent economic data have certainly contributed to this pause in rates, Becker says.
For example, the latest employment report shows the economy added more jobs than expected in June. But a report on retail sales that was released this week showed consumers are still cautious about spending. Retail sales rose 0.2 percent in June, the Commerce Department said Tuesday. That's the smallest gain since January.
There's no question consumers have been more conservative when spending, including when shopping for a home, Leyrer says. Many of the buyers she is working with have a top range of how much they are willing to spend on their mortgages per month, even when they qualify for a higher mortgage amount, she explains.
"They used to ask me, 'How much can I qualify for?'" she says. "Now they come to me and say, 'This is what I want,' and they are staying within the range they choose."
Mixed news on the housing front
Homebuilder confidence appears to be improving, but that doesn't mean the market has healed completely. The National Association of Home Builders reported Wednesday that its homebuilder confidence index rose four points to 53 in July. A reading of 50 or higher indicates that more builders view sales conditions as good.
"This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace," says Kevin Kelly, chairman of the National Association of Home Builders.
But also on Wednesday, the Mortgage Bankers Association reported that the volume of mortgage applications from homebuyers decreased 8 percent in the latest MBA weekly survey.
"The data is confusing," Becker says. "And when you think of jobs, yes, we are adding jobs, but they are not high-paying jobs and incomes really haven't been increasing."
What does that mean for rates? In Becker's opinion, this may help keep rates low until the end of the year.
"There might be a spike here and there, but I don't see them rising much," he adds.
Keep your eyes on the Fed
That's probably going to be the case until the Federal Reserve raises the federal funds rates. A Tuesday testimony by Fed Chair Janet Yellen was one of several recent signals to investors that the central bank isn't about to announce a rate hike anytime soon.
"We currently anticipate that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the federal funds rate below levels that the committee views as normal in the longer run," Yellen told the Senate Banking Committee on Tuesday.
That's good news for borrowers who have not refinanced yet or those who need more time to find a house to buy. But don't expect it to last forever.