Mortgage rates finally took a breather this week, declining slightly after a nearly uninterrupted climb since the first of the year.
Rates opened the year at a still historically low 3.95% but have increased in all but four of the 18 weeks that have elapsed since. Last week they hit the highest level since August 2013. Even with this week’s 3 basis point (bp) decline, they are 60 bps higher than when the year began.
Freddie Mac says higher Treasury yields are responsible for the increases, and those are being driven by rising commodity prices, more Treasury borrowing, and the steady stream of solid economic news.
This week’s 30-year fixed-rate of 4.55% may be disheartening to potential homebuyers and owners who somehow missed the refinancing bandwagon, but let’s have a little perspective. Freddie Mac has tracked mortgage rates since 1971, during which they have ranged from 18.63% in the fall of 1981 to the 3.5-4.0% territory they have inhabited over the last four or so years. In fact, rates never dropped below 4.0% until October 2011. Over the 47 years the 30-year fixed rate mortgage has averaged 8.35%. Still, people bought houses, paid their mortgages, and sold one house to buy another. Like everything else, mortgage rates are merely relative.
Speaking of which, the Federal Reserve’s Open Market Committee met this week. Despite inflation growing closer to the Fed’s 2.0% target, the committee voted 8-0 to leave the fed funds rate at 1.5 to 1.75%.
The National Association of Realtors’ (NAR’s) closely-watched Pending Home Sales Index (PHSI) pulled out its second consecutive monthly increase in March, albeit a small one. The index, a leading indicator of upcoming existing home sales, managed an 0.4% increase, lower than even the lukewarm 1.0% analysts had forecast. The PHSI is still running 3.0% behind a year ago.
Lawrence Yun, NAR chief economist, said that despite the strong job-creating economy, contract activity is moving sideways. “Healthy economic conditions are creating considerable demand for purchasing a home,” he said, “but not all buyers are able to sign contracts because of the lack of choices in inventory. What continues to hold back sales is the fact that prospective buyers are increasingly having difficulty finding an affordable home to buy.”
In fairness, to post any gain the PHSI had to overcome a serious weather-related deficit in the Northeast where pending sales fell 5.6%. The index was also down in the West by 1.1%, leaving the South and Midwest (up 2.5% and 2.4% respectively) to salvage a tiny positive outcome.
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