After record low interest rates for 7 months, mortgage rates are rising quickly. Mortgage rates rose for the fourth straight week this week, hitting 4.61 percent. Could this surge slow refinancings and further hamper the housing market? Absolutely.
Today, Freddie Mac says the average rate on a 30-year fixed loan increased sharply from last week’s rate. And it is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971. The average rate on a 15-year fixed loan rose to 3.96 percent. Rates hit 3.57 percent last month — the lowest level since 1991.
Currently, investors are selling Treasury bonds in anticipation of an extension of tax cuts and unemployment benefits that could boost the economy next year. Investors are also dumping the bonds because they believe budget deficits will grow over the long term because of the deal. The sell-off is raising the yield on Treasury bonds. Mortgage rates tend to track those yields.
The increase in rates already is discouraging homeowners interested in refinancing their homes. Refinance activity fell for the fourth straight week last week, according to the Mortgage Bankers Association.
Rates may see some short improvements, but will likely remain at present levels and continue to rise over time. And when you include the stimulative action of extending the present tax rates and the extension of unemployment benefits, it becomes really tough to see Bonds improving much further.