Freddie Mac VP Says If Fed Speculation Eases, Mtg Rates Will Stay Low

The average rate for the 30-year fixed-rate mortgage drifted to 4.50 percent, according to Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s survey of lenders.

Freddie Mac VP Says If Fed Speculation Eases, Mtg Rates Will Stay Low

Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s survey comes amid signs of a weakening economic recovery, which partly forced Federal Reserve to continue its bond buying program.

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Freddie Mac’s survey facts

According to the Primary Mortgage Market Survey released by Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the 30-year fixed rate mortgage averaged 4.50 percent, with an average 0.7 percent for the week ending September 19, 2013.

Interestingly, mortgage rates have increased by over one percentage point since early May when the speculation about Fed tapering began.

According to Frank Nothaft, vice president and chief economist of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), industrial production in August grew 0.4 percent, less than the market consensus forecast. He also highlighted consumer sentiment fell for the second consecutive month in September to the lowest reading since April.

Effect of FED action on mortgage industry

Frank Nothaft feels falling consumer sentiment was partly responsible for Federal Reserve choosing to maintain its MBS and bond-buying program at this September monetary policy committee meeting. He points out the Federal Reserve’s recent observations on tightening financial conditions led to increased mortgage rates since May.

With the Fed continuing its buying, including $85 billion a month in Treasury and mortgage backed securities, this would pump money into the economy leading to downward trend in interest rates.

Existing home sales rose in August

In another report published by the National Association of Realtors, sales of existing homes in August hit the highest pace in more than six years, as buyers rushed to lock in mortgage rates before they rose further.

Despite the lull in Fed tapering, NAR analysts feel that mortgage rates will eventually creep upward.

Ruth Mantell of MarketWatch, however, feels rising rates are not the housing market’s only challenge, as strong job growth is needed to unleash pent-up demand built over the recession.

Frank Nothaft of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) projects that mortgage rates will average around 4.5 percent or less for the rest of this year, stimulating further improvement in home sales and home-price appreciation. He forecasts the 30-year fixed-rate mortgage to be at or above 5 percent by the end of next year.