As Feds Slow Bond Program, Mortgage Rates Jump

United States mortgage rates soared to their highest since September 2013 as real estate investors speculated the Federal Reserve’s slowdown on its $85 billion-a-month bond-buying program is aimed at maintaining lower borrowing costs.

Freddie Mac reports the average 30-year fixed mortgage rate was 4.46% during the first week of December, up from 4.29%, while the average 15-year rate rose to 3.47% from 3.3%. Despite near-record lows in May, mortgage rates have steadily climbed, all while the Fed continues to weigh when it should scale back its stimulus. 10-year Treasury notes yields are their highest in two months, due to lower unemployment rates. The Treasury notes are considered a benchmark for home loans. Experts agree that the Federal Reserve is likely to taper sooner, not later.

With a December 17 meeting looming, Federal Reserve Bank of Atlanta President Dennis Lockhart said he is optimistic about the economy’s outlook.

“I now think it is appropriate in coming meetings to put a tapering decision on the table as long as the resulting overall posture of policy preserves a high degree of accommodation…if market expectations are that the asset-purchase program will wind down over the coming year, I think that is reasonable.” Lockhart continued, “As I think through the various factors to take into account–the data evidence, the outlook, the balance of risks–I am pretty confident in the sustainability of the economy’s progress. I didn’t have such confidence in the fall of 2012, when the current program of asset purchases began.”

In the meantime, homeowners seem to be accepting the higher rates, in light of the fact that new home purchases rebounded in October from their lowest levels in more than a year. According to the Commerce Department, “New-home sales jumped 25% to a 444,000 annualized pace, following a 354,000 rate in the prior month that was the weakest since April 2012.” From this, an investor might conclude that the higher rates do not seem to have caused lasting damage to the recovery of the housing market.

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Brian Davison
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