Homebuyers, beware: Mortgage rates are rising

Concerns about the Federal Reserve possibly slowing its stimulus efforts have helped push the cost of home loans to their highest level in a year.

By Aimee Picchi May 30, 2013 7:30AM

Toy house sitting on money (© Vstock, Tetra Images, Corbis)

Tuesday's good economic news about the housing market recovery -- with home prices surging at the fastest pace in about seven years -- was tempered by a jump in mortgage rates, with averages reaching a 12-month high, according to the Mortgage Bankers Association. 


So with all the buzz about housing's revival, why are mortgage rates rising? Lenders are boosting them because of concern that the Federal Reserve could decide to slow its stimulus policies, which have kept interest rates near record lows. 


"Mortgage rates increased to their highest level in a year," MBA research executive Mike Fratantoni said in the group's newsletter. "Rates rose in response to stronger economic data and an increasing chance that the (Federal Reserve) may soon begin to taper their asset purchases."


The average contract interest rate for 30-year fixed-rate terms rose to 3.9%. While that's still well below historic norms, it's the highest rate since May 2012. And it has led to a drop in home-loan and refinancing applications, the MBA notes. 


The Fed currently purchases about $85 billion a month in mortgage-backed bonds, Reuters says. That has kept rates much lower than they would have been otherwise, and it has helped spur demand in the housing market by making borrowing more affordable. It also lures current owners into refinancing at lower rates.


If higher rates put a damper on homebuyers' newfound enthusiasm, that could eventually mean slower sales for homebuilders such as D.R. Horton (DHI) and Toll Brothers (TOL). As reported Wednesday, the shares of homebuilders have posted big gains this year. 


Follow Aimee Picchi on Twitter at @aimeepicchi. 


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19Comments
May 30, 2013 8:16AM
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3.9% high ? LMFAO ... The feds needs to raise int rates at the fed window and kill the QE program . And investors need to relax and let your free market ride . < Because you all think it is a free market lol ..Start rewarding savers and not borrowers. Savers has been pushed aside by the feds... Start rewarding savers and not spenders . The time has come to put back power in the US dollar. But Ben likes to devalue the $ for what reason i have no clue. No sound investing principals on wall street running this DOW.. None at all ..Its truly a house of cards built by the federal reserve. That a boy Ben..
May 30, 2013 9:08AM
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3.9% rates are putting a damper on buyers' enthusiasm and mortgage app rates are already falling because of them?  What the hell happens when rates return to more historically normal levels?  We're quickly reaching a point where we'll have a whole generation of consumers addicted to free or low-cost money.  Then what?  Poor schmucks won't know what hit 'em...
May 30, 2013 10:14AM
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I agree with saph500 please raise the rates back to 7-8-9% so the people who are trying to save can get a little reward in interest on their money not this stupid .0075% give me a break!!!! I am tired of this free money and stimulus garbage. If they would make home buyers put some skin in the game to purchase we would not be in the situation we are in. Step up and reward the people who are doing it the correct way!!!! PLEASE RAISE RATES AND GET SOME DOWN PAYMENTS TO PURCHASE A HOME from all the freeloaders who want something for nothing. My parents taught me to buy what we can afford not what the banks will give us a loan for and over extend yourself to look good for your friends.
May 30, 2013 10:39PM
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I just tried the refinance process.  What a joke.  I literally had to explain any and all monetary transactions over $200.  This on a home valued over $600k, and mortgage balance less then $445k.  Excellent credit rating.  Not taking any money out.  Refi was to shorten length of loan, and get a lower interest rate.  A much more secure loan all the way around.  Lower interest rate means more goes to principal, shorter time frame also allows equity to build quicker.  The refi company realized this was not a big money maker for them, so they have done all they can to derail the process.  Then they claim the government is making them be this difficult. 

 

Yet a friend went thru a refi, and did not have the same ridiculous issues I did.  The difference, they are taking cash out.  Going over 80% LTV so that they have to pay PMI to the bank.  They are doing 30 years, and paying a higher interest rate.  Their house is modest in comparison to mine.  Their income has actually gone down in recent years, and their credit score is not as good. 

 

So this is just about the banks maximizing profits, not being fair to consumers.

May 31, 2013 9:35AM
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threw no fault of their own Theirs such a thing as the working poor who also would like a home of their own the low interest rates make this a possibility, especially now that the division between the haves and the have not's are even greater, it has created an unlikely good fortune for a growing number of people. So don't be so quick to complain about it.
May 30, 2013 7:53PM
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Keep real inflation between a deflationary 1% and 0% inflation and interest rates will stay low, most likely between 4 and 5%.
Jun 4, 2013 2:59AM
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Ben's gonna borrow to crash. That's the only way it works. Stop borrowing, POP! The Federal Reserve owns these property's  they buy up and when the economy tanks the Federal Reserve is the biggest landlord. Get some alternative news, you tube. All the numbers are rigged by the Fed and Treasury their not real.
May 30, 2013 3:19PM
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Barry must have taken time out to change his depends.
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