U.S. Mortgage Rates At 2-Year High

July 11, 2013 — -- The average 30-year fixed mortgage rate rose to 4.51 percent, a two-year high, on the possibility that the Federal Reserve would reduce future bond purchases, according to Freddie Mac.

The 30-year fixed-rate mortgage averaged 4.51 percent for the week ending July 11, up from last week when it averaged 4.29 percent. Last year at this time, it averaged 3.56 percent.

The 15-year fixed rate mortgage averaged 3.53 percent, up from 3.39 percent last week and 2.86 percent from a year ago.

On Thursday morning, stocks opened at record-high levels after comments Wednesday night from Federal Reserve chairman Ben Bernanke that the Fed intends to keep its $85 billion a month bond purchasing stimulus program in place for the near future. The Dow closed at an all-time high on Thursday.

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Before Bernanke spoke at a conference at the National Bureau of Economic Research, the Federal Reserve released minutes from its policy committee meetings from June 18 and 19. Those meeting notes indicated many members were waiting for further improvement in the labor market before bond purchases could be slowed.

Last month, Bernanke hinted that the Federal Reserve could begin tapering bond purchases as early as this fall if, among other factors, the country's unemployment situation improved.

Frank Nothaft, vice president and chief economist with Freddie Mac, said households were moving into the mortgage-lending market out of fear that interest rates might rise.

Nothaft said June's employment numbers, which indicated a higher than expected 195,000 jobs added last month plus higher revisions for the previous two months, led to more market speculation that the Federal Reserve would reduce future bond purchases. That caused bond yields and mortgage rates to rise, he said.

"Moreover, hourly wages rose by 2.2 percent over the last 12 months and represented the largest annual increase in nearly two years," he said. "However, the minutes of the June 18th and 19th Federal Reserve's monetary policy committee meeting, released July 10th, stated that many members indicated further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of bond purchases."

The jobs report indicated part-time jobs increased to more than 350,000, an indication that the quality of jobs did not keep pace with the quantity of jobs added.

When asked if some people are just getting into the market on the fear that mortgage rates will rise further, Zillow senior economist Svenja Gudell said that may be only one part of the story.

"Some of the demand may be pulled forward for those that are already in the process of buying and they might try to speed up closing so they are able to lock-in the lowest rate possible, but it's unlikely that a flood of brand new buyers will enter the market just because mortgage rates are rising," she said.

It's important to remember that mortgage rates are still incredibly low, she said.

"Per Freddie Mac, the average 30-year fixed rate over the past 42 years was roughly 8.5 percent, so anything below 6 percent is a bargain. Also, rates of 6 or even 7 percent won't happen overnight. While it's expected that mortgage rates, in general, will continue to rise, it will take a few years for them to reach that level," she said.

Gudell said some investors are beginning to exit markets due to rising mortgage rates and home values, especially in areas like Phoenix and Las Vegas that have seen above average investor activity. With that view in mind, homebuyers could benefit.

"First-time homebuyers will no longer be pushed out of these markets and have more of a chance to be competitive, avoiding stressful and frustrating bidding wars," she said.