July 17th, 2013
Mortgage rates rose to a high during the week ending July 12. Interest on a 30-year fixed-rate loan hit 4.51 percent, according to Freddie Mac. Rates have been growing after reaching record lows in May, but these gains have not caused a slowdown in the resilient housing recovery. In fact, research from real estate company Trulia found rates would actually have to increase to 10.5 percent before renting would become cheaper than buying a home.
This is great news for homebuyers, who can rest assured they are still making the most economical decision. It also means the housing market should continue to thrive for quite a while.
Chairman of the Federal Reserve Bernanke also wants to ensure the U.S. real estate sector stays on its path of success. Lately, he has made a few important announcements that have caused the shifts in mortgage rates. First, in June, Bernanke announced the central bank could be pulling back its bond-buying activity as early as this year.
Its current practice of purchasing $85 billion of bonds per month has been supporting the market and keeping interest rates low. Thus, the possibility this stimulus could end caused alarm among investors and pushed mortgage rates up.
Things are looking up for homebuyers
Bernanke’s announcement came with the stipulation that tapering would happen only when the U.S. unemployment rate sinks to 6.5 percent. The Bureau of Labor Statistics recently released its June jobs report, which revealed the nation added 195,000 positions for the month. However, the unemployment rate remained at 7.6 percent.
As such, Bernanke has said the economy likely still has some recovering to do, and the end of quantitative easing isn’t as imminent as everyone thought. In fact, many economists anticipate that even when tapering does arrive, the Fed will probably focus on cutting purchases of Treasuries rather than Mortgage-Backed Securities (MBS) over fears of hindering the current housing resurgence.
“There is a valid case to slow down Treasury purchases before MBS purchases,” Roberto Perli, a partner at economic research firm Cornerstone Macro and former economist for the Fed’s division of monetary affairs, told Bloomberg. “The recent sharp increase in mortgage rates poses a threat to the housing recovery, and a continued housing recovery is necessary if the economy is to stay on a more robust trajectory.”
Thus, it is still unclear how mortgage rates will behave in the coming weeks, but it seems as though the Fed will ensure the cost of a mortgage stays within the affordable range.