For the first time in a month, mortgage rates are rising.
With the Eurozone preparing to launch its €500 billion rescue fund and the U.S. economy showing unexpected signs of improvement, mortgage bond pricing worsened across all loan types, sending mortgage rates higher on the week.
Conforming mortgage rates and jumbo mortgage rates rose the most. FHA mortgage rates, VA mortgage rates and USDA mortgage rates rose only modestly.
How Freddie Mac’s Survey Went Wrong
Everyone’s talking about low mortgage rates. It’s all over the news, all over the papers, and plastered on the internet. It’s one reason why refinance mortgage applications rose to a multi-year high last week — everyone wants to take advantage of today’s low rates.
According to Freddie Mac, the average 30-year fixed rate mortgage rate is not 3.36% nationwide for borrowers willing to pay 0.6 discount points plus a full set of closing costs. Rates for the 15-year fixed rate mortgage rate are even lower, registering 2.69% on average for borrowers willing to pay the same 0.6 discount points and closing costs.
Both rates are at all-time lows. However, as this week opens, if you attempt to lock a 3.36% mortgage rate with 0.6 discount points this week, you won’t get access. This is because mortgage rates started rising about the same time that last week’s Freddie Mac survey concluded.
The Freddie Mac survey is based on mortgage rate data collected between Monday morning and Tuesday afternoon from more than 125 banks nationwide. Last week, however, unfortunately, mortgage rates starting rising beginning Wednesday mid-morning.
By the time Freddie Mac’s survey was published Thursday morning, the lowest rates of all-time were already unattainable — at least not without paying more than the listed 0.6 discount points.
Zero-closing costs mortgage rates moved even higher.
Europe And U.S. Jobs Push Rates Up
Rising mortgage rates may be a casualty of better-than-expected jobs figures.
Friday morning, the September Non-Farm Payrolls report showed 200,000 net new jobs in the U.S. economy after accounting for upward revisions to July and August data. Wall Street had expected just 120,000.
Furthermore, the national Unemployment Rate slipped to 7.8%, its first time below 8 percent since January 2009.
After losing 7.3 million jobs between 2008-2009, the U.S. economy has since added back all but 3 million of them. Job growth has been net positive for 24 straight months and the consumer confidence is rising. These are good signs for the economy and reasons for the bond market to sink.
As bond market worsen, mortgage rates rise.
Another reason for rising mortgage rates is that the European Stability Mechanism (ESM) has gone live, a 500 billion euro fund meant to backstop the Eurozone’s members from default. Fitch has rated the fund AAA.
The existence of the ESM lessens the chance of sovereign default among Eurozone nations including Greece, Spain and Italy — a primary driver of low U.S. mortgage rates from mid-2010 until the present. Risk in Europe drove safe-haven buying which propped up U.S. bond markets.
With the ESM in place, investors may seek investment risk instead, a change which moves mortgage rates up.
This Week : Momentum May Lead Rates Higher
It’s a holiday-shortened week for bond markets; there was no action Monday for Columbus Day. However, as markets reopen Tuesday, it’s expected the mortgage rates will continue along the same path as they closed last week.
There is little new data set for release save for the Federal Reserve’s Beige Book (Wednesday), Producer Price Index (Friday) and a handful of speeches from Federal Reserve members including Richard Fisher and Naryana Kocherlakota.
In addition, the U.S. Treasury is auctioning 10-year notes and 30-year bonds. Weak demand at either auction may lead mortgage rates up.