Fixed mortgage rates moved sharply upward this week in anticipation that the Federal Reserve would signal that it would soon start scaling back its purchases of Treasury bonds that have served to keep interest rates low for the past four years.
Average rates on standard 30-year fixed-rate mortgages jumped to 4.58 percent, up from 4.40 percent last week, in today's weekly Freddie Mac rate survey. Average rates on 15-year fixed-rate mortgages moved up to 3.60 percent, up from 3.44 percent previously.
Adjustable-rate mortgages (ARMs) were largely unaffected, with the average initial rate on 5-year Treasury indexed ARMs actually declining slightly, dropping to 3.21 percent, down from 3.23 percent previously. All figures are for mortgages with an 80 percent loan-to-value ratio.
Fed appears to follow script
The increases in fixed rates came in the expectation that Wednesday's release of the minutes of the Fed's Open Market Committee meeting in late July would show members expressing increased support for starting to curtail the bond buying program. That's largely how things turned out, according to Freddie Mac chief economist Frank Nothaft.
"Committee members were broadly comfortable with a plan to start reducing its bond purchases later this year, although a few emphasized the importance of being patient," Nothaft said. "Meeting participants acknowledged mortgage rate increases might restrain housing market activity, but several members expressed confidence the housing recovery would be resilient in the face of higher rates."
Early reports are that rates have continued to show modest increases since yesterday's release of the Fed minutes.
Stronger economy means higher rates
Expectations that the Fed will soon start scaling back its bond purchases have been driven in part by indications the economy is doing well enough to begin weaning it off the stimulus the bond purchases provide. The National Association of Realtors reported this week that existing home sales were up sharply in July, reaching their strongest pace in since the fall of 2009, when sales were spurred by the temporary homebuyer tax credit.
Members of the homebuilding industry are feeling more optimistic about the direction of their business, as the National Association of Home Builders' index of builder confidence hit its highest level since late 2005. Both developments occurred despite the sharp increase in mortgage rates that has occurred since last spring.