Have the days of the sub-5% mortgage passed?
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A spike in mortgage rates may have left would-be home refinancers wishing they hadn’t waited quite so long.
Rates for conforming 30-year fixed loans -- the plain vanilla mortgages that make up most of the market -- jumped from an average 5.03% last Tuesday to 5.44% on Thursday before slipping to 5.30% Friday, according to HSH Associates of Pompton Plains, N.J.
Monday they edged up again, to 5.38%, HSH Vice President Keith T. Gumbinger said today.
The bond market, which ultimately determines what happens to interest rates, tends to drive them down when the economic outlook is bad. Signs that the economy may no longer be getting worse contributed to the shift away from the rates under 5% seen in recent months, Gumbinger said.
Other reasons for the move, he added, include bond investors’ demands for higher rates because of worries that inflation may return sooner than anticipated, a flood of new sovereign debt being issued, and ‘what seemed to be pretty shoddy treatment of GM bondholders by the administration.’
Bankrate.com senior analyst Greg McBride said federal government borrowing to fund its huge deficit spending is driving up borrowing costs for everyone, ‘and for consumers that means higher mortgage rates.’
‘If you wanted a sub-5% rate, that opportunity has passed you by,’ McBride aid.
But heavy Federal Reserve purchases of Treasury bonds and mortgage-backed securities should in the short term keep the cost of home loans at what historically are extraordinarily low levels, he said.
‘They may not necessarily be able to bring rates to sub-5%,’ McBride said, ‘but they can keep a lid on mortgage rates.’
The upward tick is expected to slow refinancings more than home purchases, because, as Gumbinger put it, ‘The interest rate is just one of a number of planets which must align’ for a home to get sold.
Still, the higher rates, if sustained, could put some additional downward pressure on home prices, since interest rates do affect affordability.
-- E. Scott Reckard
