Mortgage rates jumped to their highest level in two years this week, according to Freddie Mac's Primary Mortgage Market Survey, propelled mainly by the Aug. 21 release of the Federal Reserve's comments concerning the wind-down of its bond-buying program, which is likely to start next month.
The average rate for a 30-year fixed mortgage increased to 4.58%, up from 4.4% the week prior, while the average rate for a 15-year fixed mortgage climbed to 3.6%, up from 3.44%, according to Freddie Mac. Both were the highest since July 2011.
According to the minutes of the Federal Open Market Committee's (FOMC) July meetings, policy makers are ‘broadly comfortable’ with Fed Chairman Ben S. Bernanke's plan to start curtailing bond buying later this year, providing economic data are favorable. That, in turn, boosted mortgage rates to higher levels this week.
‘Fixed mortgage rates continued to follow bond yields higher leading up to the August 21 release of the Federal Reserve monetary policy committee's minutes for July,’ says Frank Nothaft, vice president and chief economist for Freddie Mac. ‘In its July 30-31 meetings, the committee members were broadly comfortable with a plan to start reducing bond purchases later this year, although a few emphasized the importance of being patient.’
Borrowers remain undeterred by the increasing rates. According to the National Association of Realtors existing home sales report, released Wednesday, July home sales jumped 6.5% to reach the second-highest level in six years. Those transactions largely reflect closings of contracts signed one to two months earlier, when rates were beginning to rise.
In its report, Freddie Mac points out that existing home sales have increased to the strongest pace since November 2009. What's more, home builder confidence has risen to its highest level since November 2005.
Most economists are expecting that the FOMC will start slowing its $85 billion-a-month bond-buying program in September, according to a Bloomberg News report.
Meanwhile, the rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 3.21% this week, down from last week when it averaged 3.23%, according to Freddie Mac. A year ago, the 5-year ARM averaged 2.8%.
The rate for 1-year Treasury-indexed ARMs averaged 2.67% and was relatively unchanged from last week. At this time last year, the 1-year ARM averaged 2.66%.