The drop in mortgage rates this week is only a temporary phenomenon as the recent Fed’s announcements will make the rates to tick back up again soon, notes Freddie Mac.
In its Primary Mortgage Market Survey results released Thursday, Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) anticipates interest rates may begin to trend higher going into next week.
Fixed mortgage rates move down a tad
The report highlights that for the week ending March 20, the average rate for a 30-year fixed-rate mortgage (FRM) was 4.32%, down from 4.37% the week prior. However, a year ago this time, the 30-year FRM averaged 3.54%.
The Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) survey also reveals that the average rate for a 15-year FRM was 3.32%, a drop from 3.38% the previous week, though a year ago at this time, it averaged 2.72%.
Echoing the trend, the average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) too dropped to 3.02% from 3.09% the week prior, while a year ago, the five-year ARM averaged 2.61%.
However, the 1-year Treasury-indexed ARM too averaged 2.49% this week, with an average 0.4 point, up from last week when it averaged 2.48%. At this time last year, the 1-year ARM averaged 2.63%.
The following graph sets forth the trend in the rates for all the four categories:
Fed’s move to revive rates uptick
A couple of days back, the Federal Open Market Committee announced that beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month, down from $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month, down from $35 billion per month. This amounts to another $10 billion per month of tapering.
The Fed also modified its forward guidance, which had previously suggested an increase in rates once a 6.5% unemployment level was reached.
The Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) report points out that with the Fed announcing that it will continue tapering its bond-buying program and its indication that a hike in short-term rates may come as soon as mid-2015, it is expected that rates will tick back up again soon.
The report also highlights that the rate on the 10-year Treasury note rose following the Fed’s announcement this week, and if this holds, interest rates may begin to trend higher going into next week.