Mortgage rates: Turning point or bump in the road?

May 17th, 2013

On May 9, 30-year mortgage rates broke a streak of 5 straight weekly declines when they rose by 7 basis points to 3.42 percent. Fifteen-year rates also rose for the first time since March.

Of course, a change in direction is not especially unusual for mortgage rates. Even when they make a strong move up or down over time, they tend to get there via a zig-zag pattern rather than a straight line. Thus, the recent uptick in mortgage rates could either prove to be a turning point, or just a temporary bump in the road.

This question may take months to resolve itself, but you will want to keep a close eye on the market and your fingers on a mortgage calculator in the meantime if you've been considering a mortgage.

What happens next?

A likely cause of the rise in mortgage rates was a reasonably strong employment report released on Friday, May 3. Looking forward, what economic reports are most likely to trigger significant moves in mortgage rates? Here are three candidates within the next month:

  1. The Consumer Price Index report, due out May 16. Any sign of sharply rising prices could push mortgage rates upward.
  2. The Gross Domestic Product second estimate, due out May 30. A significant revision from the first estimate could influence mortgage rates up or down, depending on the direction of the revision.
  3. The Employment Situation Report, due out June 7. If the jobs market can build on its surprise improvement in April, it could fuel an upward trend in mortgage rates.

In short, if these economic signals indicate rising prices and/or an improving economy, look for the recent uptick in mortgage rates to be just the beginning. If they go the other way, that uptick may turn out to be an aberration.

Either way, while it's not certain that mortgage rates will start rising at this point, don't expect them to fall much from here. Mortgage companies need to charge rates that can cover inflation, compensate them for default risk, and make a profit. At 3.42 percent, there's already little room for mortgage rates to accomplish all of that. So, if your loan calculator is indicating that you can afford to purchase or refinance at today's rates, you don't have much to gain by waiting any longer.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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