Why are mortgage rates rising?
by Tim Manni
On Monday we reported that mortgage rates ended the week prior on the rise. And according to HSH.com’s latest weekly mortgage rate survey, the upward trend has continued into this week.
According to HSH.com’s Weekly Mortgage Rate Radar, the average rate for conforming 30-year fixed-rate mortgages rose by 12 basis points (0.12 percent) from the week prior to 4.13 percent. Conforming 5/1 hybrid ARM rates increased by 9 basis points, closing the Wednesday-to-Tuesday wraparound weekly survey at an average of 3.01 percent.
“A strengthening economy has pushed mortgage rates up a little bit,” said Keith Gumbinger, vice president of HSH.com. “We’ve moved off the absolute rock-bottom lows of the past few months to a slightly higher level.”
Gumbinger noted that a stronger economy doesn’t mean the end of low mortgage rates, however.
“The Federal Reserve is still committed to keeping mortgage rates low, and nascent optimism about the health of the economy may fade given the concerns about higher gasoline prices and still-troubled European markets. However, without the emergence of more downbeat news, it will be difficult for mortgage rates to decline much.”
Why are mortgage rates rising?
- The economy: The main reason mortgage rates are rising is because of the improving economy. Just ask the Fed, they said so in their statement which followed the FOMC meeting last Tuesday. “While their assessment suggests that the growth needles have moved by just a touch, from ‘modest’ to ‘moderate,’ it was enough to spark a strong move in interest rates, and underlying Treasury yields moved considerably higher by week’s end,” wrote Keith Gumbinger, vice president of HSH.com, in the latest Market Trends newsletter.
- Treasury yields: The yield on the 10-year Treasury is a reasonable gauge for the movement of mortgage rates. Those yields hung at or below the two percent level for much of this year (with a few exceptions), and flared higher, rising nearly a third of a percentage point between Wednesday and Friday of last week, explained Gumbinger. Investors are moving away from safe-haven investments (Treasurys and bonds) and starting to invest in more riskier assests.
- Confidence: Whether it is consumer or investor confidence, positivity is also serving to foster a higher-rate environment. Last week, the news that the majority of the banks passed the Treasury Department’s “stress test” as well as the lessening of troubles in the Eurozone helped to foster a more positive vibe across the markets.Even the housing sector is starting to turn positive, with many conditions suggesting we may be having the first real spring homebuying season since the downturn began. The NAR reported this morning that February’s existing-home sales slipped a bit from January, but are up substantially from a year ago.
“Yields on 10-year notes, which move inversely to prices, fell 4 basis points to 2.33%–coming off their highest levels since late October and up from 2% two weeks ago,” wrote Deborah Levine on MarketWatch.com this morning.
Don’t fear higher mortgage rates
First off, the recent bump in mortgage rates is nothing to press the panic button over. As Gumbinger pointed out, rates are trending off rock-bottom levels to only slightly higher levels. And if you want to see economic growth, as we all do, firming rates are simply a part of it.
If you’re in the market for a purchase or refinance this spring, you should know that mortgage rates just might continue their upward trajectory, but by how much remains to be seen. That said, current mortgage rates are still at fantastic levels not seen in decades.
Don’t forget the dangers of playing the “mortgage rate waiting game.”
