August 27th, 2012

Is the rise in mortgage rates almost over?



Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox:

Mortgage rates continued their mild upward track last week and now stand at early July levels. For those of us who monitor the market closely, we know those days as “former-record lows.”

Often, a sustained rise in rates, even a mild one such as this one, would prompt worry among borrowers that they might miss their chance to get a great mortgage rate for a home purchase or refinance. Not so much this time, as we’ve not wandered very far or moved very fast; at most, mortgage rates have temporarily bounced off the bottom, and there’s little economic evidence to support a continued rise.

Mortgage rates move higher’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages (conforming, nonconforming and jumbos) rose by six basis points (0.06 percent) to 3.96 percent.

The FRMI’s 15-year companion also increased by six basis points, rising to 3.22 percent.

Important to homebuyers and low-equity-stake refinancers, still-low FHA-backed 30-year mortgages marched another seven basis points upward to 3.58 percent, while the overall average rate for 5/1 Hybrid ARMs finished the weekly survey at 2.82 percent, up two hundredths of a percentage point from the previous week.

Mortgage rates and home sales

The slight rise in mortgage rates this August shouldn’t do much damage to home sales, which have been fairly solid this year, relative to the past few. Home prices, too, have begun to firm somewhat as fewer distressed sales skew home price measurements downward.

8.27.12 HSvs30FRM_082412

Sales of existing homes ticked back up to a 4.47 million (annualized) rate of sale, recovering some of the dip seen in June. The median price of homes sold during the month was 9.4 percent higher than those moved in July 2011, and inventory levels held pretty steady at 6.4 months of supply at the present sales pace, just slightly above normal levels.

Sales of new homes also moved higher in July, rising by 3.6 percent to an annualized 372,000 and June’s figure was also bumped up by 9,000 units, too. Unlike existing homes, prices of new homes are 2.4 percent lower this year than last year at this time, but inventories remain very tight at just a 4.6 month supply, and the number of units built and ready to be sold moved deeper into record-low territory, with just 142,000 units available. It would appear that virtually all building is being done only when a buyer signs a contract, and that there’s no desire among builders to construct homes in anticipation of demand, as was the case when the market was booming.

Are we done with rising mortgage rates?

Influential yields on 10-year Treasuries rose from record low levels in late July (a daily low yield of 1.43 percent) to several-month highs of 1.83 percent on August 17. That period of not-quite steady increases gave way to a bit of a retreat of late, with the yield easing to 1.69 percent by the close of business Friday. This suggests to us that the run up in mortgage rates has come to a close, and that we will see somewhat lower mortgage rates next week. To be fair, the change from July’s record lows to this week’s “highs” constituted all of 11 basis points, not even one-eighth of one percent. Not much of a rise, but we’ll probably trim a few basis point off this week’s average by the time next Friday rolls around.

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2 Responses to “Is the rise in mortgage rates almost over?”

  1. Jason Says: August 27th, 2012 at 7:15 pm

    In one voice I’m thinking that it’s about time mortgage rates went up because everything else has gone up. In another, I’m with you in saying that the rates fell so low that their going up really isn’t all that much of an issue. The appearance of lower rates or rates starting to go up both stimulate buyers to get their act together and consider buying, and that works out well for the housing market either way it goes.

  2. Tim Manni Says: August 28th, 2012 at 1:36 pm

    Hey Jason,

    Thanks for commenting. As you indicated, mortgage rate movements can be more psychological than anything. And many times when we refer to rising rates, it’s an increase of just a few basis points, nothing to really be concerned about.


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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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