Mortgage rates have spiked considerably over the past four weeks as a slew of positive economic data has hinted that the economy may be picking up steam. While Fed Chairman Ben Bernanke indicated on Wednesday that the Fed may eventually scale back its bond buying program, this is not the only impetus to the spike in interest rates. Mortgage rates had been rising considerably even before the Fed Chairman’s speech. The speech simply provided more evidence that the economy is mending and that the free money era of the last five years may be closer to ending than many expected or wanted.
The chart below shows that 30 year mortgage rates bottomed in December of 2012, while 15 year rates hit their low in February. 5/1 ARMs, which are based on short term interest rates are still near their lows (the Fed has more control over short term rates and has kept the main rate at 0%).
According to BestCashCow data, average 30 year mortgage rates are now 4.043%, up from 3.440% in December. In looking over our database, I’ve seen the number of lenders offering 30 year mortgages with no points and a rate below 4% shrinking considerably over the past month. The 4% 30 year rate will soon be extinct.
The NY Times ran an article saying that mortgage rates may stabilize soon. That’s possible but I’m not so sure. Rates on all kinds of bonds – corporate, federal, and municipal – spiked in the past two weeks and I think the bond market is looking ahead to accelerated growth. The bond market is often a better predictor of future economic activity than the stock market.
What Should You Do?
If you haven’t refinanced, do it. The risk of more rate increases is significantly higher than the possibility of lower rates. If you need to lock your rate I would also do that. As we’ve seen, rates can move up significantly in a short period of time. And if you’re waiting on the sideline to buy a house until rates come down, don’t do it. Mortgage rates are still historically low and timing the bottom is an impossible task.
No one really knows what is going to happen and even the best experts are proved wrong most of the time, but hopefully this provides you with a bit of perspective that you can use to make your own decisions.