Mortgage rates rose this week, as the Federal Reserve prepares to whip up a little inflation.
The benchmark 30-year fixed-rate mortgage rose 9 basis points this week, to 4.51 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 0.33 discount and origination points. One year ago, the mortgage index was 5.35 percent; four weeks ago, it was 4.5 percent.
The benchmark 15-year fixed-rate mortgage rose 8 basis points, to 3.9 percent. The benchmark 5/1 adjustable-rate mortgage rose 7 basis points, to 3.67 percent, while the benchmark 30-year, fixed-rate jumbo rose 2 basis points, to 5.1 percent.
Weekly national mortgage survey
Results of Bankrate.com's Oct. 27, 2010, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
QE and lower ratesNext week, the Federal Reserve's rate-setting committee is expected to announce a second round of what it calls "quantitative easing." The minutes of the panel's most recent meeting, in late September, showed most members thought inflation was too low.
The committee "discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations."
So if the Fed does embark on another round of quantitative easing, it probably will do so by purchasing Treasury securities. That would pour cash into the economy. Theoretically, more cash would cause prices to rise, spurring businesses and consumers to buy now instead of later. Increased demand, in turn, would create more jobs.
The Fed's method -- buying longer-term Treasury bonds -- would push interest rates down, at least at first. Rates eventually would rebound higher as employment picked up. This week, it looks like mortgage rates skipped the initial phase of lower rates and headed straight for the rebound and its higher rates.
Home value uncertaintyIf rates are topsy-turvy, so are house values. This week saw the release of numerous house price indexes. Taken together, the reports yielded year-over-year increases in confusion and month-to-month decreases in certainty.
- The National Association of Realtors said the median price of a resold home in September was $172,600, down 1.9 percent from September 2009.
- The Census Bureau said the median price of a new home was $223,800 in August, up 3.3 percent from August 2009.
- The Standard & Poor's Case-Shiller Index found that prices rose 2.5 percent in 10 large markets from August 2009 to August 2010.
- In the same 10 markets and over the same 12-month period, another company found that prices fell 2.6 percent. That result came from FNC, an analytics company based in Oxford, Miss.
- Clear Capital, an analytics company in Truckee, Calif., announced early in October that prices nationally rose 2.4 percent from September 2009 to September 2010. But last week, the company issued a "special alert" saying that prices in its Home Data Index had fallen 5.9 percent in the two months ending in mid-October.
When reviewing these contradictory reports, keep this in mind: these indexes aren't built for consumers. Rather, they're compiled to inform other audiences: Realtors, regulators, bankers, mortgage bond investors and mortgage servicers. Don't rely on a house price index to tell you when to buy or sell a house.
Kevin Marshall, president of Clear Capital, says it's possible that prices could fall for another couple of years, although that's not a sure thing. But short-term price fluctuations matter little to someone who owns a house for 15 or 30 years.
"Get back to the mindset (of) saying, 'I'm going to invest in my home, I'm going to live in it, I'm going to mow the lawn, take care of it, raise my kids there,'" Marshall says. "Right now, if people are employed and they have good credit, they're in a great position to buy."
Mark Fleming, economist for CoreLogic, an analytics firm based in Santa Ana, Calif., advises consumers "not to get so much hung up on individual numbers" when looking at house price indexes.
"Their methodologies are different, the data that they're using (are) not exactly the same, so you get slightly different answers," Fleming says. "But they're directionally often very similar. It's not the magnitude but the trend that is most important."