Today’s interest rates are more than a full point higher than they were September of 2012, when they were 3.55%. As of this writing, interest rates are at 4.85%, the highest they’ve been since 2011, in response to uncertainty about the Federal Reserve’s Bond Buying Program as well as the escalating crisis in Syria.
Interest Rates Have Been at Record Lows
Interest rates started to reach record low levels back in October 2011 when they dropped below 4% for the first time in history.
Interest rates hit their lowest point this year and then began to climb in May. Starting May 23, rates for a 30 year fixed mortgage had gone up from 3.42% May 9th to 3.51% May 16, and then to 3.59% May 23rd. . On May 28th interest rates reached 4.0%.
Once rates hit 4.0% in May, they continued to fluctuate and have since remained in the 4% range.
Now that the economy is showing signs of recovery, there has been talk of the Fed putting an end to Federal Reserve Bond Buying Program. As a result, interest rates have begun to respond by increasing.
How Interest Rates Affect Home Buyers and Sellers
Interest rate fluctuations have a huge impact on home buyers. For instance in May, when the average conventional rate was at 3.54%, a monthly payment on a $350,000 loan would be $ 1,579. With today’s rate of 4.85%, the monthly loan would jump to $1,847, a difference of $268 a month.
Interest rate increases also put negative pressure on home prices. When interest rates go up, price appreciation tends to slow down. Therefore those who are listing their homes for sale need to keep this in mind when pricing.
Rates for Jumbo Loans Now Cheaper than Conforming Loans
Mortgage rates for so-called jumbo loans (loans above the loan limits set by Fannie Mae and Freddie Mac) are actually lower than conforming mortgage rates, which has never happened before. Today’s rate for a jumbo 30 year fixed is 4.79% in comparison to 4.85% for a 30 year conforming loan.
In other words, for those with excellent credit and a large down payment, if you borrow a little more, you could get a lower interest rate. Conforming loans have become more expensive because Fannie Mae and Freddie Mac have raised their fees they charge to lenders. Since house prices have been rising, banks are getting a better return on loans than they were even a year ago.
Rates Will Go Lower Before the End of the Year
We expect interest rates to go lower before the year ends. Historically, interest rates tend to dip to their lowest level during November and December. As you can see in this chart below, the lowest interest rates for 2010, 2011, and 2012 have all occurred in November or December. In 2010, rates were 4.17% the week of November 11th, in 2012, rates dipped to 3.91% the week of December 22nd, and last year, rates hit their lowest level of 3.31% for the week of November 22nd.
We don’t believe they will go their lowest level of the year, but instead they will settle down. Most likely interest rates will not go below 4% again, but will likely settle down to the low 4% range.
In 2014 we do expect to see rates get up over 5%, so if you are thinking of buying a home, this fall would be a great time.