Mortgage rates rise as Fed meets

While the Federal Reserve discussed eventual changes to its monetary strategy, mortgage rates continued to march higher this week. An upbeat report from retailers and new debt issued by the Treasury also helped to buoy rates, but the 2014 outlook remains favorable for borrowers.

30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage rose to 4.33 percent from 4.27 percent last week, according to the national survey of large lenders. One year ago, that rate was 4.66 percent. Four weeks ago, it was 4.24 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 3.46 percent from 3.42 percent.
  • The benchmark 5/1 adjustable-rate mortgage rose to 3.35 percent from 3.29 percent.
  • The benchmark 30-year fixed-rate jumbo rose to 4.37 percent from 4.35 percent.

Weekly national mortgage survey

Results of's Sept. 17, 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:4.333.463.35
Change from last week:+0.06+0.04+0.06
Monthly payment:$819.45$1,176.32$727.18
Change from last week:+$5.82+$3.24+$5.46

"It's not uncommon for mortgage rates to rise going into the Fed meeting," says David Cary, a mortgage broker for C2 Financial Corp. in Sausalito, California.

Bring on the Fed

The central bank's monetary policymaking arm, the Federal Open Market Committee, on Wednesday continued scaling back its third round of asset purchases, designed to boost the economy by lowering interest rates. The FOMC reduced the program by $10 billion in monthly Treasury and mortgage bond purchases, as expected, and is on schedule to end QE3 altogether by its next meeting in October.

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The Fed did not tweak its language regarding the timing of future hikes to the federal funds rate, a key benchmark for interest rates on consumer and business loans. The committee says it probably will keep the federal funds rate near zero percent for a considerable time after QE3 ends.

"It's not the act of raising rates, but more the anticipation that causes the market to react," says Brian Rehling, chief fixed-income strategist for Wells Fargo Advisors.

Other factors pushing rates up

Cary noted that retailers posted encouraging sales numbers in August. The Commerce Department said on Friday, Sept. 12 that retail and food sales increased by a seasonally adjusted 0.6 percent in August from July. Adding to the good news was an upward revision to July's spending to 0.3 percent, which had initially come in flat. Rosy economic indicators like that help bolster the Fed's case to raise interest rates sooner rather than later.

Another small factor lifting rates was the Treasury's issuance last week of $21 billion in new 10-year notes, Cary says.

"That pushes the yield on bonds up, which were an eighth to a quarter-point higher this week, so rates go up," he says. Mortgage rates typically track the yield on the 10-year Treasury note.

Foreigners keep rates in check

But here's some relief for borrowers: Rates won't get too high while the European economy struggles. The Fed's equivalent across the Atlantic -- the European Central Bank -- has taken unprecedented steps to stimulate the economy there, implementing negative interest rates on deposits and planning asset purchases, as Italy flounders in recession and after Germany, the continent's biggest economy, contracted in the second quarter.

"Global investors have the option to move money around anywhere and yields on our 10-year Treasuries look attractive relative to value on a global scale," Rehling says. "It makes for a compelling case for global investors to buy U.S. Treasuries over other options."

When they do, the yields on those assets fall, along with rates on mortgages.

Paul Edelstein, director of financial economics at IHS Economics, expects mortgage rates to stay well below 5 percent for the rest of the year and then rise as the central bank increases the federal funds rate. His advice for borrowers now?

"If you're looking to lock in a favorable mortgage rate," he says, "earlier is better."


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