October 7th, 2013
After months of rising mortgage rates, recent conditions in the U.S. economy have caused rates to drop. In fact, as of Oct. 3, they had declined for three consecutive weeks. A report from Freddie Mac showed that the average interest on a 30-year fixed mortgage is 4.22 percent, down from 4.32 percent the week prior. This is also the lowest rates have been since June.
Similarly, 15-year fixed loans have an average rate of 3.29 percent as of Oct. 3, compared to 3.37 percent the week before and 2.69 percent a year ago. These statistics suggest the housing market is heading back in favor of buyers after mostly being a seller’s market this year. Lower mortgage rates will help make homes more affordable.
The cause of rate movements
The Federal Reserve has a large impact on the nation’s mortgage rates. While it does not directly select the levels, its actions affect the market heavily. When the United States entered the Great Recession, the central bank began to boost the economy by buying bonds. It currently purchases $85 billion in bonds each month.
However, as the economy has improved, the Fed suggested it might soon pull back its stimulus. This caused rates to jump almost immediately. Now, circumstances have changed again, since a government shutdown was implemented on the first day of October. According to CBS News, the shutdown, paired with general economic uncertainty and the Fed’s decision to hold off on tapering the stimulus, have allowed rates to fall. Some analysts anticipate they will drop even further if the shutdown persists.
“A recent Bloomberg survey of professional forecasters suggests that a partial federal shutdown lasting one week would shave 0.1 percentage points off GDP growth in the fourth quarter and even more if the shutdown lasts longer,” Frank Nothaft, vice president and chief economist at Freddie Mac, said in a release.
Impact of the shutdown on mortgage applications
It’s possible that the government shutdown will have other effects on the U.S. housing market. For instance, the Los Angeles Times points out that with many government services out of commission, lenders will have difficulty confirming potential borrowers’ incomes and identities. Depending on how long the shutdown lasts, it could become harder to get a mortgage loan.
Furthermore, there are now risks to loans that are backed by government agencies, such as the Federal Housing Administration.
The good news is that so far, these issues are all conjecture, and it is still impossible to tell how long the shutdown will last and how it will affect the market.