Fed Predictions Continue to Upset Mortgage Interest Rates
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UPDATED: Jun 27, 2013
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Home loan interest rates experienced stronger than average increases this week resulting in multiple percentage point jumps across the board.
The extraordinary weekly increases are a blowback of the remarks made by the Federal Reserve Bank of New York (Fed) last week. Last Wednesday, Fed chief Ben Bernanke predicted that the Fed will likely reduce their bond purchases in late 2013 or early 2014.
This announcement impacted the housing industry greatly by causing an upswing in the home loan interest rates.
The 30-year fixed-rate mortgage (FRM) averaged 4.34 percent, a drastic increase from 4.02 percent reported last week.
The 15-year FRM averaged 3.38 percent, an increase from 3.11 set last week.
The 5/1 adjustable-rate mortgage (ARM) interest rate averaged 3.29 percent. Last week the rate was 2.68 percent.
Bernanke said that the Fed’s current $85-billion monthly bond purchases would be reduced in late 2013 and then will likely be eliminated by the middle of 2014. Instead of following a strict timeline, the Fed stated it will act accordingly to predicted growth in the economy. If that growth does not occur at the required rate, the timeline could be pushed back.
Jon Gibson, director of mortgage and finance for Move.com, said they have been expecting the Fed’s action for awhile, but the large spike in home loan interest rates this week was a surprise.
“This is uncommon to see jumps this large,” he said.
Gibson said the Fed’s intent for reducing their bond purchases is for a slow increase in interest rates and not a rapid one. But there is another concern about the Fed announcement.
“For the overall market, the volatility is probably more of a concern than the actual increase in rates,” he said.
Although mortgage rates continue to remain at a relatively low level, Gibson said that these steady increases have not impacted consumers as much due to a lack of inventory. This problem with supply has forced average and first-time homeowners to compete against cash offers for properties.
But Gibson said there has been a recent “big jump” in inventory, which will help homebuyers.
May 2013 reports from Realtor.com found that inventory increased 5.82 percent over April 2013. Last year the increase was only 1.77 percent.
“It could relax some of the pressure on homebuyers,” he said. “We think homebuyers will move off the fence and into the market.”