Mortgage Rates Reach One-Year High, Could Signal Trend

Interest rates for mortgages have jumped to their highest levels in a year following reports of stronger economic and housing market conditions and sparking speculation of decreased Federal Reserve involvement in stimulus efforts.

The average rate for a 30-year fixed mortgage increased from 3.59% to 3.81% in the week ended May 30, according to Freddie Mac’s Primary Mortgage Market Survey, while the average 15-year rate rose from 2.77% to 2.98%.

On Wednesday, 10-year U.S. Treasury bond yields reached 2.23%—the highest level since April 5, 2012, Bloomberg reports, signaling to bond investors a coming hike in borrowing costs. The Federal Reserve plans to scale back its quantitative easing initiative once unemployment rates go down and stay down, said Fed chairman Ben Bernanke in comments before Congress last week. 

“Fixed mortgage rates followed long-term government bond yields higher following a growing market sentiment that the Federal Reserve may lessen its accommodative policy stance,” said Frank Nothaft, vice president and chief economist at Freddie Mac, in a  statement. “Improving economic data may have encouraged those views.”

Consumer confidence reached its highest level in May since February 2008, Nothaft noted, while the S&P/Case-Shiller 20-city composite index for March rose to its highest reading since November 2008. 

Mortgage applications fell last week for the third week in a row, according to the Mortgage Bankers Association (MBA). The MBA’s mortgage application index dropped 8.8% by May 24 from one week prior, with a 12.3% decline in refinancing applications. 

Written by Alyssa Gerace

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