Mortgage Interest Rates Rise By A Full %
Residential mortgage rates increased by a full percentage point last month, bringing rates to the mid-4% range.
According to an article in the Los Angeles Times, “The average rate for a 30-year fixed-rate home loan hit 4.63% on Monday, according to HSH Associates, up from the 4.33% that HSH recorded Friday and a record average low of 3.44% for the week that ended Dec. 14.”
This jump in rate is halting the home refinance boom that was at its peak in September 2011, when the 30-year fixed rate was below 4% for the first time ever. In addition, the higher rate increases mortgage payments just enough where some borrowers will be pushed out of the market for the homes they want to buy.
The article goes on to state, “The monthly payment on a 30-year fixed-rate mortgage for $300,000 is $1,347 at 3.5% but $1,520 at 4.5% — more than $2,000 more per year. Should the 30-year rate rise to its historic norm of about 6%, the monthly payment would increase to $1,799, adding more than $5,400 to the annual financing cost.” That 1% increase makes a big difference.
The increasing mortgage interest rates rise has also contributed to a recent sell-off in homebuilder stocks. According to the report, “Shares of Los Angeles’ KB Home, which closed as high as $24.82 during the first half of May, closed Monday at $19.25 — down 22% from that May price. Lennar Corp. closed Monday at $34.99, 20% off its high in May; and Toll Brothers Inc. closed Monday at $31.85, 15% below its recent high of $37.60.”
Investors want higher interest rates and are being scared by these latest numbers. The Federal Reserve Chairman, Ben Bernanke, recently said that the Fed could begin tapering off is giant purchases of Treasury bonds and mortgage securities later this year. These purchases stimulate the economy by keeping rates low. If they were to decrease, the markets would be much more volatile.
The article goes on to state, “The yield on the 10-year Treasury note, generally a benchmark for fixed mortgage rates, rose for the sixth straight trading session Monday to close at 2.55%. It was 1.66% on May 2. It’s difficult to tell whether the jump in rates reflects a new reality or simply an increase in volatility caused by confusion regarding the Fed’s plans, the Mortgage Bankers Assn. said in a financial commentary Friday.
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