Long-term mortgage interest rates started the new year higher, according to mortgage guarantor Freddie Mac, as investor confidence grew on indications of a healthier economy.
The average rate on a 30-year fixed rate mortgage (FRM) climbed to 4.53 percent, excluding fees, from 4.48 percent during the last week of December. That’s the highest point since the week of September 12 when rates reached 4.57 percent. Compared with a year ago, the 30-year FRM is up significantly from 3.34 percent.
Rates on the 15-year FRM also rose, with the averaging growing to 3.55 percent, up from 3.52 percent last week. The one-year adjustable rate mortgage (ARM) rate slipped to 2.56 percent from 2.57 percent.
“Mortgage rates edged up to begin the year on signs of a stronger economic recovery,” said Freddie Mac vice president and chief economist Frank Nothaft in a statement.” The pending home sales index inched up 0.2 percent in November, after five consecutive months of decline. The Conference Board reported that confidence among consumers rose in December and the S&P/Case-Shiller® 20-city composite house price index rose 13.6 percent over the 12-months ending in October 2013.”
Confidence could also be rising as a result of the Federal Reserve’s recent decision to start tapering its $40 billion-a-month stimulus program. Many investors may see the Fed’s confidence in the economy as impetus to start taking on investments with more risk.
Rates are likely to keep rising through 2014 as the economy improves and more jobs are added. In his November outlook, Nothaft forecast that rising rates will change the shape of the mortgage market this year. “With the close of 2013 will also come a major transition in the housing finance industry,” he said. “For the first time since 2000, we’re going to see the mortgage market dominated by purchase activity as the refinance share drops below 50 percent. And with mortgage rates rising, we’re also going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels.”