Mortgage Rates Fall As Fed Continues Tapering

Long-term mortgage interest rates fell in the latest week after rising for two, according to mortgage giant Freddie Mac, even as the Federal Reserved announced plans to reduce its market support.

The average interest rate on a 30-year fixed-rate mortgage (FRM) fell to 4.17 percent, excluding points in the week ended June 19, down from 4.20 percent the week before. The new rate is still higher than the 3.93 percent from last year at the same time.

The 15-year FRM slipped to 3.30 percent from 3.31 percent and the one-year adjustable rate mortgage (ARM) dropped to 3.00 percent from 3.05 percent the week before.

A day before the rates report was released, the Federal Reserve’s Federal Open Market Committee (FOMC) issued a statement  saying that “growth in economic activity has rebounded in recent months,” citing improvements in household spending, labor markets and fixed investment. The growth was enough for the Fed to cut its monthly market-stabilizing bond purchases by another $10 billion for the next six weeks. At the beginning of 2014, the Fed was buying up $80 billion worth of bonds to keep rates lows; the latest reduction brings purchases down to $35 billion a month.

The Fed also decided to keep its target rate at its current position near zero and is unlikely to raise it in the near future. “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.”

The bond-buying program has had the effect of keeping mortgage rates fairly low over the past few years, a fact that has helped boost refinancing and encouraged some home-buying. Yet the Fed’s accommodative measures have not been enough to keep rates as low as they had hoped as rates shot up last summer and have not yet returned to previous lows. As the housing market has stuttered along so far this year, it is difficult to imagine the Fed raising its target rate much at all throughout the rest of 2014.




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