Mortgage rates have been rising since late spring, when Federal Reserve Chairman Ben Bernanke first announced the possibility of a reduction in the $85-billion-a-month bond-buying program. The Fed has been the primary purchaser of mortgage-backed securities since late 2008, creating constant demand for these products, which helped push mortgage rates to record lows. Mortgage rates spiked at the end of June when the Fed signaled that paring back of bond-buying could begin in September. And rates have remained elevated since then, but the Fed’s unexpected decision to not scale back on its program will likely result in a break from rising mortgage rates. Instead, rates are likely to drop at least for the next month, says Keith Gumbinger, vice president at mortgage-info website HSH.com.
For home buyers who are about to get a mortgage, the announcement should result in lower rates. The average rate on 30-year fixed-rate mortgages fell slightly to 4.64% by end of day Wednesday, down from 4.68% for the week ended Sept. 13, according to HSH.com. Gumbinger says rates could drop by as much as 10 basis points, the equivalent of 0.10 percentage point, in total by the end of the week, which would bring average rates to 4.58% and they could drop to as low as 4.48% on average by mid-October, especially if the economic reports released during this period are weaker than expected. At 4.48%, rates would be back to where they were in the beginning of July.
A break in rising rates is unlikely to last long though. It’s unknown whether the Federal Reserve will change course at its meeting in late October, and mortgage analysts say it’s possible that rates could rise in the days leading up to the Fed’s next announcement. It also remains to be seen what will happen when the Fed starts to exit the market. More private investors could step in to purchase mortgage-backed securities, but they might not buy as much as the Fed currently is. Less demand could result in higher rates. If economic data remains weak and if the Fed presses on with its bond-buying program into November, 30-year mortgage rates could drop by as much as 20 basis points, or 0.20 percentage points, falling to 4.28% on average, says Gumbinger.
Of course, the prediction of lower rates to come is based on many assumptions. Rather than trying to time the market, mortgage applicants who want to proceed with their home purchase over the next few weeks should find out if their lender offers any options that would allow them to tap into lower rates—if such rates materialize. Lenders often offer what’s called a float-down option: If home buyers get to closing and rates have dropped below the rate they were quoted, a float down allows them to get that lower rate instead. Most float downs kick in if rates drop anywhere from one-eighth to a quarter of a percentage point. In most cases, borrowers will have to pay a nonrefundable fee of roughly a quarter-percentage point of the total dollar amount of the mortgage.
Beyond mortgage rates, it remains to be seen if a delay in tapering will impact home sales. Home sales have been rising for much of this year as buyers rushed to lock in mortgage rates before they climbed further. But as mortgage rates have increased, home sales have started to stall. New home sales, which are tallied at the signing of the contract, tumbled 13.4% in July from a month prior—the steepest drop in three years, according to the Commerce Department’s latest data. Existing-home sales, which are a lagging indicator that tally transactions that went to closing, also suggest a drop in the pace of home buying as rates have risen. Existing-home sales increased 1.7% in August from a month prior, according to data released Thursday by the National Association of Realtors. In contrast, July sales rose 6.5% from a month prior
Source: http://www.marketwatch.com/story/bernanke-gives-home-buyers-a-breather-2013-09-20
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For home buyers who are about to get a mortgage, the announcement should result in lower rates. The average rate on 30-year fixed-rate mortgages fell slightly to 4.64% by end of day Wednesday, down from 4.68% for the week ended Sept. 13, according to HSH.com. Gumbinger says rates could drop by as much as 10 basis points, the equivalent of 0.10 percentage point, in total by the end of the week, which would bring average rates to 4.58% and they could drop to as low as 4.48% on average by mid-October, especially if the economic reports released during this period are weaker than expected. At 4.48%, rates would be back to where they were in the beginning of July.
A break in rising rates is unlikely to last long though. It’s unknown whether the Federal Reserve will change course at its meeting in late October, and mortgage analysts say it’s possible that rates could rise in the days leading up to the Fed’s next announcement. It also remains to be seen what will happen when the Fed starts to exit the market. More private investors could step in to purchase mortgage-backed securities, but they might not buy as much as the Fed currently is. Less demand could result in higher rates. If economic data remains weak and if the Fed presses on with its bond-buying program into November, 30-year mortgage rates could drop by as much as 20 basis points, or 0.20 percentage points, falling to 4.28% on average, says Gumbinger.
Of course, the prediction of lower rates to come is based on many assumptions. Rather than trying to time the market, mortgage applicants who want to proceed with their home purchase over the next few weeks should find out if their lender offers any options that would allow them to tap into lower rates—if such rates materialize. Lenders often offer what’s called a float-down option: If home buyers get to closing and rates have dropped below the rate they were quoted, a float down allows them to get that lower rate instead. Most float downs kick in if rates drop anywhere from one-eighth to a quarter of a percentage point. In most cases, borrowers will have to pay a nonrefundable fee of roughly a quarter-percentage point of the total dollar amount of the mortgage.
Beyond mortgage rates, it remains to be seen if a delay in tapering will impact home sales. Home sales have been rising for much of this year as buyers rushed to lock in mortgage rates before they climbed further. But as mortgage rates have increased, home sales have started to stall. New home sales, which are tallied at the signing of the contract, tumbled 13.4% in July from a month prior—the steepest drop in three years, according to the Commerce Department’s latest data. Existing-home sales, which are a lagging indicator that tally transactions that went to closing, also suggest a drop in the pace of home buying as rates have risen. Existing-home sales increased 1.7% in August from a month prior, according to data released Thursday by the National Association of Realtors. In contrast, July sales rose 6.5% from a month prior
Source: http://www.marketwatch.com/story/bernanke-gives-home-buyers-a-breather-2013-09-20
Total Solutions Advisors Jim Clooney Site
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