Mortgage Rates Hit 4 Percent before New Year

Long-term mortgage interest rates moved back above 4 percent during the last week of 2015, according to data from mortgage guarantor Freddie Mac, a sign that markets are reacting to the recent Federal Reserve rate hike.

The average rate on a 30-year conventional, fixed-rate mortgage (FRM) jumped to 4.01percent, excluding fees, during the week ended December 31, 2015, up from 3.96 percent the previous week and up from the same time last year when it averaged 3.87 percent. It is now at its highest level in five months, since the week ended July 23 when it hit 4.04 percent.

“In the final week of 2015, Treasury yields jumped reacting in part to strong consumer confidence in December,” remarked Freddie Mac chief economist Sean Becketti. “In response, the 30-year mortgage rate rose 5 basis points to 4.01 percent, ending a 5-month span below 4 percent. After averaging 3.9 percent in the fourth quarter of 2015, we expect the 30-year mortgage rate to average 4.7 percent for the fourth quarter of 2016.”

Part of that consumer confidence was a result of the Federal Reserve’s December 16 decision to raise its target rate after seven years at rock bottom. It upped the range to 0.25 percent to 0.50 percent from its previous stagnant position of zero to 0.25 percent. The Fed saw enough strength in the employment market and wage growth to boost rates for the first time in over nine years. That optimism translated into investor confidence.

The rate on the 15-year FRM also rose to a 5-month high, climbing to an average of 3.24 percent, up from 3.22 percent the week before and 3.15 percent a year ago. The last time the 15-year FRM was this high was during the week ended July 16, 2015 when it was 3.25 percent.

The one-year adjustable rate mortgage (ARM) carried an average rate of 2.68 percent, unchanged from the previous week and up from 2.40 percent compared with the year before.

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