- May 25, 2002
- Professional Status
- Certified Residential Appraiser
Fixed-rate mortgages now at levels last seen in the fall
Why the sharp rise?
The volatility in mortgage rates isn't completely unexpected, and issues in the credit markets are likely to cause more mortgage rate volatility this year, said Greg McBride, senior financial analyst with Bankrate.com.
"When mortgage rates move down very sharply, they tend to rebound equally sharply, McBride said. "However, there's usually one catalyst that sparks that rebound, and this time around there wasn't one single precursor."
For one, concern about inflation is putting upward pressure on long-term rates, he said. That's because inflation erodes the buying power of future payments that a bond holder receives, he added. Rates rise to compensate.
Inflation worries will continue to influence rates over the next several months, and continued Fed rate cuts could stoke those worries even more, McBride said.
Overall, a general concern about the U.S. economy -- from inflation concerns to the weakness of the dollar -- has prompted the rate rise, said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter. If more investors want to buy U.S. Treasury bonds, the rates go down, taking mortgage rates with them; when they're less willing to buy the rates tend to go up, he said.
"The world is concerned about investing in the U.S. overall," he said. "The currency stinks, the economy stinks, and they're requiring a higher return to make an investment."
The rate jump also likely includes a reaction to concerns about what the rise in conforming loan limits, as outlined in the recent economic stimulus package, would do to the mortgage landscape, said Ken Fears, an economist with the National Association of Realtors.
The rise in limits could inspire holders of jumbo loans to refinance into conforming loans with lower rates, which would reduce the return that mortgage investors receive, he said. Banks have to offer higher returns to keep getting them to invest, he added.
Housing market effect
As the lower rates seen in past weeks might have caught the attention of those thinking of making a home purchase, the sudden turnaround might now give them pause.