Tags: Mortgage | Rates | Fed | Home Loans

Mortgage Rates Surged Last Week in Wake of Fed's QE Plan

Wednesday, 26 Jun 2013 07:56 AM


Rates on home mortgages surged to the highest level in close to two years last week as the recent selloff in the bond market after the Federal Reserve laid out a plan to wind-down its massive stimulus program drove borrowing rates higher.

The dramatic increase cut into refinancing demand, though homebuyers continued to show interest, data from an industry group showed on Wednesday.

Interest rates on fixed 30-year mortgage rates averaged 4.46 percent in the week ended June 21, up 29 basis points from the week before, the Mortgage Bankers Association said. It was the highest level since August 2011.

Rates have been rising since early May, but last week's sharp increase came after the Federal Reserve said it could pull back on its quantitative easing program by the end of the year.

The Fed has been buying bonds and mortgage-backed assets to keep borrowing costs low and stimulate economic growth. The historically low mortgage rates have helped lure in buyers as the housing market gets back on its feet.

The higher cost of mortgages has raised concerns that could dampen demand and slow the housing recovery, though most economists do not expect it to derail it completely. Even with the increase, rates remain historically low.

Indeed, the acceleration in rates did not appear to scare off buyers last week with the MBA's seasonally adjusted index of loan requests for home purchases rising 2.1 percent.

"Homebuyers are not yet dissuaded by the increase in mortgage rates," said Mike Fratantoni, MBA's vice president of research and economics.

But the gauge of refinancing applications tumbled 5.2 percent. The refinance share of total mortgage activity fell to 67 percent of applications from 69 percent the week before.

The index of mortgage application activity, which includes both refinancing and home purchase demand, fell 3 percent.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

© 2015 Thomson/Reuters. All rights reserved.

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