Mortgage rates rise as competition slumps

2/21/2014 11:06:37 AM

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The Federal Reserve recently released minutes from its latest January meeting, revealing that officials considered suspending the decrease in stimulus spending. As a result, mortgage rates inched higher in the second part of February, according to a recent report by Freddie Mac.

The average rate for a 30-year fixed-rate mortgage reached 4.33 percent during the week ending Fed. 20, above the previous week's average of 4.28 percent. While slightly higher, interest rates are still below their highest point in 2013, above 4.5 percent. A year ago, mortgage rates averaged much lower at 3.56 percent.

Short-term interest rates also rose in the third week of February, increasing to 3.35 percent from the previous week's average of 3.33 percent. During the same time last year, mortgage rates were averaging 2.77 percent for a 15-year fixed-rate home loan.

"Mortgage rates crept up further following the uptick in the 10-year Treasury yield as minutes of the Federal Reserve's last meeting indicated little possibility of a pause in the central bank's reduction of bond purchases," said Frank Nothaft, Freddie Mac vice president and chief economist. "Housing starts in January fell 16 percent to a seasonally adjusted annual rate of 888,000 units, below consensus forecast. Permits were at a seasonally adjusted annual rate of 937,000 in January, also below consensus."

Fed fiscal decision
While there was a consensus among Fed officials that the stimulus spending would continue to be tapered in 2014, some argued that because the economy was showing signs of slowing down and hiring was sputtering, the reduction in spending should be put on hold. Additionally, the low rate of inflation played a role in the questioning of the fiscal policy and tapering throughout the year.

Mortgage rates are expected to continue rising as the Fed pulls back its bond-purchasing program, with some economists expecting rates for a 30-year fixed-rate mortgage to climb above 5 percent. However, because the economy recovered strongly in the second half of 2013, the Fed will continue to taper spending for the immediate future.

Homebuying prospects improve
Despite higher mortgage rates, homebuyers may find 2014 to be a better year to purchase a home. A separate report by Redfin revealed that home buyers may find that the spring selling season will be less competitive and offer a better chance to find a new home. The low inventory of homes for sale during 2013 created a competitive market that made it particularly difficult for first-time home buyers to make a new home purchase. Fortunately, the bidding wars in January were significantly down, Redfin reported.

In the 22 markets measured by Redfin, real estate agents encountered competition in just over 58 percent of the offers they drafted in the first month of 2014. While there were fewer competitive bids in December - about 52 percent of offers - the figure is still well below the 70 percent of competitive offers seen last year. This means that buyers have a better chance of securing a new home in 2014 than last year.

Contact the Federal Savings Bank, a veteran owned bank, to explore affordable housing options.