Analysts expect mortgage rates to finally stabilize

June 25th, 2013

Mortgage rates should stabilize and stay below 6 percent

Mortgage rates have been very temperamental lately. After months of dropping to amazing lows and even breaking some records, rates recently started moving back up, causing many people to wonder if they could actually rise all the way back to 6 percent.

Fortunately, analysts hypothesize this time of uncertainty will finally be coming to an end. Loans aren’t expected to drop back to record-breaking levels, but they should remain modest.

According to The New York Times, on June 20, 30-year fixed mortgage rates saw an increase to 4.25 percent from 4.12 percent the day before. Only a month ago, the rate was 3.5 percent. This is a fairly large margin in such a short time. The record low occurred in November 2012 at 3.35 percent.

Still, economists point out that rates on car loans, home equity loans and credit cards have been steady and are expected to stay that way. This is because such short-term rates are not affected as much by the Federal Reserve.

On June 19, Federal Reserve Chairman Ben Bernanke announced the bank has plans to cut back its stimulus plan as soon as this year. The economy is recovering well, he reasoned, so the current program of spending $85 billion a month on securities and bonds can safely come to an end.

Following this announcement, yields on 10-year government bonds rose and, soon after, so did mortgage rates. Of course, Bernanke emphasized that the change in the Fed’s bond-buying will only occur if the economy continues to improve.

Financial-crisis-era rates are still far in the distance
Despite all of the changes in the market, an average mortgage rate should still stay well below the highs the country experienced in 2007. According to an article by Bob Pisani for CNBC, Americans are worried because if rates do reach 6 percent, the monthly cost of owning a home will grow by roughly 25 percent.

However, the Federal Reserve will continue to monitor the market and ensure that, if it would hinder the economy, this situation will not happen. Members of the bank have stated that if high rates do threaten the economy, they will continue the quantitative easing program.

“Mortgage rates tend to move a lot in a short amount of time, then do nothing for a longer period,” Greg McBride, a senior financial analyst at Bankrate, told The New York Times. “Rates will stabilize and potentially pull back as Bernanke’s words fade and economic reality sets in.”