Surging mortgage rates may have little effect on the housing market, at least in the near term, housing experts say.
Mortgage rates rose sharply last week following comments from Federal Reserve Chairman Ben Bernanke that the Fed will begin tapering off its asset purchases later this year if incoming data continues to show the economy is on the mend.
Currently, the Fed purchases $40 billion in mortgage-backed securities and $45 billion in Treasuries every month in an effort to boost borrowing by keeping interest rates low.
Mortgage rates had been rising since early May, as investor demand for mortgage-backed securities (MBS) that fund most U.S. mortgage loans weakened on speculation that the Fed was preparing to scale back its $85 billion-a-month “quantitative easing” program.
With Bernanke confirming that the Fed is ready to shut the program down altogether by next year if the economic recovery remains on track, MBS prices plunged last week, sending mortgage rates up (bond prices and yields move in opposite directions).
The average cost of a new 30-year, fixed-rate mortgage loan, with and without points, increased to 4.36 percent on June 21, from 3.94 percent on June 14 and a record low of 3.36 percent in December, according to Bankrate.com data.
Dan Green, loan officer with Waterstone Mortgage in Cincinnati and author of The Mortgage Reports blog, noted that the typical, zero-point, 30-year fixed mortgage rate is near 4.75 percent today, up from 4.25 percent or so before the Fed’s announcement Wednesday. The rate last reached 4.75 percent in April 2011, he said.