Future Direction of Mortgage Rates Will be lower in 2013 Thanks to the Fed

Since the financial crisis and the great recession the Federal Reserve has been on a campaign to force mortgage rates lower to help the housing market and the economy. The Fed has been very successful at driving mortgage rates to record lows but the housing market is still in the doldrums, at least until recently. Two strong housing reports released last week is giving hope that low mortgage rates today are finally helping the housing market recover from the worst bust since the depression of the 1930's.

The National Association of Realtors last week said existing home sales increased 7.8 percent in August, the biggest increase in more than two years. Not only are home sales increasing the price of a home year over year has increased as well. The NAR also said the median price nationwide for existing home resales rose 9.5 percent from a year earlier. An annual price gain that high reminds me of the boom a few years ago.

Another report showing that the housing market is making a come back is housing starts increased at an annual rate of 750,000 last month, an increase of 2.3 percent from a month earlier in a report released by The Commerce Department. There has been a refinance boom because of low refinance rates the past couple of years but it appears people are finally buying homes again enticed by record low mortgage interest rates. Home builders recognize there is a lot of pent up demand over the past several years and are finally breaking ground on new homes to supply the demand.

Average 30 year mortgage rates recently tied a record low of of 3.49 percent in Freddie Mac's Primary Mortgage Market Survey. Average 15 year mortgage rates hit a record low of 2.77 percent in Freddie's survey last week. The future direction of mortgage rates will be even lower in the coming year.

The Federal Reserve announced they will buy $40 billion a month in mortgage backed securities (MBS) to drive mortgage rates even lower. MBS are investment products sold to investors. Lenders basically take a bunch of mortgages, bunch them together and they are sold as securities to investors. Since the Fed is buying these securities they will be enticing lenders to make more loans which will bring mortgage rates down even more.

In 2013 we would possibly see 30 year mortgage refinance rates come down to the 3.00 percent range on conforming loans. Fixed conforming 15 year mortgage rates could come down to the 2.25 percent range. Jumbo mortgage rates will also make new lows in 2013. Average 30 year jumbo mortgage rates which currently are around 4.00 percent could come down to 3.50 percent. Average 15 year jumbo mortgage rates today are at 3.20 percent could come down to the 2.75 percent range.
Author: Robert Till
September 23rd, 2012
Posted in: Mortgage Rates