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Prepare for Takeoff: Mortgage Rates Set to Climb

In anticipation of possible action by the Fed on short-term interest rates before the end of the year, the already near-record low mortgage rates nudged up from the previous week, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS) for the week ending October 13, 2016.

The minutes from the Federal Open Market Committee’s September 21 meeting released earlier this week said that the decision not to raise rates in that meeting was a “close call” with three out of the 10 policymaking voters dissenting from the consensus not to raise rates. In those same minutes, the Fed cautioned that a rate hike would come “relatively soon.”

“The current upward movement in (mortgage) rates is a reflection of financial markets globally expecting less quantitative easing from the European Central Bank and another hike by the Federal Reserve this December,” Realtor.com Chief Economist Jonathan Smoke said. “It is tough to predict exactly where rates will be in any given day, week, or month, but the general consensus from here is that we are likely to see a gradual movement upward.”

And mortgage rates are likely to continue their gradual increase over the near term, according to Smoke: “We may see rates pull back again if the economic data point to differing views of monetary policy or strength, but the most likely outcome in the weeks and months ahead is moderately higher rates.”

While the Fed generally watches the way the economy flows, in particular the labor market, in their determination to raise the short-term interest rates, there is another factor to consider: the presidential election, which will take place on November 8. If the election of the new president throws the economy into turmoil, the Fed may pull back from a rate hike in December.

Still, the mortgage rates moved up this week, with the average 30-year fixed-rate mortgage climbing by five basis points up to 3.47 percent and the average 15-year FRM rising by four basis points up to 2.76. Both rates are down from 3.82 and 3.03 at this time last year, respectively, according to the PMMS. The record low for the 30-year FRM was 3.31 percent, set in November 2012.

“This week the 10-year Treasury yield continued its climb as an increasing number of financial market participants foresee a December rate hike after a series of positive economic data releases,” Freddie Mac Chief Economist Sean Becketti said. “The 30-year fixed-rate mortgage moved up five basis points to 3.47 percent in this week's survey, the first increase in one month. Even though we've seen economic activity pick up, consumer price inflation and implied inflation expectations remain below the Federal Reserve's 2 percent target.”

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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