Mortgage Rates: Where We’ve Been and Where We’re Going

In 2012, the housing market got a boost from the long-term stability of mortgage rates. The Federal Reserve’s stimulus measures helped keep borrowing costs near record lows for much of last year, and through the first few months of 2012.

Low rates helped bring home buyers off the sidelines and into the market, driving home prices north across much of the country.

But mortgage rate trends shifted significantly in May 2013. That’s when Federal Reserve officials met for one of their Federal Open Market Committee (FOMC) meeting.
These meetings are a regular occurrence, taking place eight times a year. But the event that took place on May 1 sent waves through the stock market and the broader economy. That was when Fed officials said they could begin winding down their bond-buying stimulus program known as quantitative easing.

Shortly after that seemingly innocuous statement, the 10-year Treasury yield rose sharply. Mortgage rate trends tend to follow the up or down movements of the 10-year T-bond, and this time was no different.

Trend Watch: Current Mortgage Rates 1% Higher Than May

On May 2, the benchmark 30-year mortgage rate began an upward climb
that put it well into 4% territory. During the week ending on July 12,
the benchmark rate hit an 18-month high of 4.51%.

Delaying a purchase until later this year will likely increase the total cost of the purchase.

The sudden shift in mortgage rate trends alarmed housing analysts and home buyers alike.

Analysts are concerned that rising rates could slow the nascent
recovery taking place in the housing market. Home buyers worry that
higher borrowing costs could put homeownership out of reach entirely.

So far, rising rates haven’t had a major effect on home-buying
activity. Refinancing activity, on the other hand, has dropped sharply
in response to the recent rate trends. Last week, the Mortgage Bankers
Association’s refinance index — a measure of refinancing activity based
on application volume — fell to its lowest level since July 2011. The
purchase index, which measures home-buying activity, rose slightly
during the same period.

Home prices are a bigger concern in some parts of the country.
Property prices in California and throughout the Southwest are rising
fast enough to shrink the buyer pool. For instance, home prices in the
San Francisco metro area jumped by more than 20% over the last year.
This trend will definitely squeeze some buyers out of the market.

But these tremendous price gains are limited to a dozen or so
metropolitan areas. In other parts of the country, prices are rising
much more gradually or not at all. So there should still be plenty of
housing demand through 2013 and into 2014.

Recent mortgage rate trends haven’t stopped the housing recovery. But
they have generated plenty of headlines and caught the attention of
home buyers across the country. Savvy buyers can put two and two
together. With home prices rising in most cities, and mortgage rates
following an overall upward trend, it’s clear that market conditions are

From a home buyer’s perspective, the best days are in the rear-view
mirror. Delaying a purchase until later this year will likely increase
the total cost of the purchase, from both a pricing and interest

Looking Ahead: Market and Rate Predictions Through 2013

So what can we expect in the weeks and months ahead? Home prices will
likely continue along their current trajectory. A reversal of the
current trend is unlikely. Housing inventories have shrunk considerably
in most parts of the country, at a time when demand is rising. So we
will likely see more of the price gains we’ve seen over the last year.

We anticipate a gradual rise in rates through the end of the year

As for mortgage rate trends, these are much harder to predict. The
Federal Reserve’s stimulus program have kept lending rates near record
lows for months. But there is a lot of concern about how and when the
Fed will taper this program.

The mere mention of tapering caused mortgage rates to jump by more than a full percentage point.