Up. Down. Up. Down. Up. That was the pattern for mortgage interest rates this week, but in the end, "up" won a decisive victory. Mortgage rates rose to their highest levels in more than half a year.
Despite the volatility, rates over the last couple of weeks have definitely been on the rise, says Steve Majerus, chief marketing officer at CMG Mortgage in San Ramon, Calif.
The benchmark 30-year fixed-rate mortgage rose 18 basis points this week, to 4.89 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.36 discount and origination points. One year ago, the mortgage index was 5.04 percent; four weeks ago, it was 4.46 percent.
It's the highest level for the 30-year fixed since Bankrate.com's June 2 survey, when the benchmark rate was 4.95 percent.
The benchmark 15-year fixed-rate mortgage rose 19 basis points, to 4.26 percent. The benchmark 5/1 adjustable-rate mortgage rose 11 basis points, to 3.85 percent, and the benchmark 30-year, fixed-rate jumbo mortgage climbed 10 basis points, to 5.39 percent.
Weekly national mortgage survey
Results of Bankrate.com's Dec. 8, 2010, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
Why the upswing?
Majerus says 100 in-the-know people might offer 100 different reasons for the rise in mortgage rates. Among them would be:
- Inflation fears sparked by the Federal Reserve's "quantitative easing."
- A rosy report on U.S. employment from payroll processor ADP.
- Concerns about debt contagion in the eurozone.
- A basic belief that long-term interest rates simply must increase sooner or later.
The "wild card" is whether the Fed will continue its activism, as that likely will have "the biggest impact" on consumer interest rates for a while, Majerus says.
A little inflationThe Fed wants to create "a little bit of inflation" and improve the stock market to spur business and consumer spending, which would help the economy, but trigger higher rates, says David Basaleli, senior vice president at Guaranteed Home Mortgage Co. in White Plains, N.Y.
"The stock market is taking quantitative easing as a very bullish sign for stocks, and seemingly from fear of inflation, bonds are reacting negatively, causing bond yields to go up," he says.
Employment numbersLast Friday's employment situation report from the U.S. Bureau of Labor Statistics, or BLS, sent mortgage interest rates lower, but only for the morning, Basaleli says. The numbers apparently were "taken in the greater context and perhaps discounted somewhat" due to other signs of economic improvement, he says.
The BLS reported an increase of just 39,000 nonfarm payroll jobs in November and an uptick in the nation's unemployment rate to 9.8 percent. But ADP reported an increase of 93,000 private-employer jobs in the same month. The government's unemployment insurance claims report, due out today, could confirm or contradict those reports.
Opportunistic dipsBorrowers are likely to see continued rate volatility, but Basaleli says the "chances of rates eroding further, meaning getting worse, are greater than the chances of rates making a comeback."
Majerus says borrowers should "be very attentive to the fluid situation" and try to take advantage of "opportunistic dips" in rates, such as the brief drop that happened after the BLS released its report.
That's not to advocate market timing, however.
"If you're comfortable that whatever the rate is that day achieves your goal of improving your situation," Majerus says, "you should pull the trigger."