A survey by mortgage finance company Freddie Mac showing that U.S. mortgage rates have gone up for three weeks in a row and now top 5% is already setting off some alarm bells over fears that any possibility of a recovery of the nation's real estate market might now be doomed because the Federal Reserve has stopped buying up mortgage-backed securities.
Because the government slowly brought its purchasing program to an end, rather than going cold turkey, many experts had predicted little to no impact on mortgage rates, which had reached near historic lows, well below 6%. (In early December, the rate on a 30-year fixed rate mortgage averaged 4.71%.)
The new survey shows the 30-year fixed rate averaging 5.08% for the week ended April 1.
"We are seeing some upward pressure on mortgage rates due both to increasing rates on U.S. Treasury notes and possible effects of the end of the Federal Reserve's intervention in the mortgage-backed security market," says chief economist
Stan Humphries of Zillow.com, as quoted by Reuters. Humphries even predicts the rate will continue to rise, reaching near the 6% mark by the end of this year.
The government shelled out an estimated $1.25 trillion dollars buying up mortgage-backed securities that had been issued by by Freddie Mac and Fannie Mae, according to the Associated Press.
The Web site Bankrate.com took a survey of experts and found that 69% of the panel predict mortgage rates will rise over the next week, while 6% think rates will fall. The other 25% think rates will stay about the same.
Among those who think rates will continue to rise is Michael Becker, a mortgage consultant with Green Pastures Mortgage & Finance in Maryland.
"The combination of the Federal Reserve's withdrawal from the agency mortgage-backed security market and the large supply of Treasury sales needed to fund the deficit will exert upward pressure on mortgage rates," he tells Bankrate.com.
Another is Jim Sahnger with Palm Beach Financial Network in Florida who weighs in on Bankrate.com with this advice: "Rates look for a new normal after the Fed has 'left the building.'" he says. " Expect greater volatility in day-to-day mortgage rates. So, don't be surprised if you talk to two different lenders at different times of the day and get really different rates. Lock when rates make sense, as rates are still great."
The big question, still unanswered, is whether there will be enough private money moving back into the market to take the place of the federal dollars?
The Fed has indicated that it would consider stepping back into the mortgage-backed securities market should it start to look as if trends were moving radically in the wrong direction.
It is way too early to tell that as yet.
A slight "correction" was certainly expected by some once the March 31st deadline came and went. And, while even the smallest increase in mortgage rates threatens to further weaken the still seriously wounded housing market in the U.S., the trend of just one week and the experience of just a few days post government withdrawal from the market, are simply not enough to hit the panic button.
Having said that, we all need to keep a very close eye on how mortgage rates move in the next several weeks.
Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real-estate related issues for several years.
Mortgage rates rise above 5 percent: should you be worried?