The average mortgage rate movement has been getting a lot of attention in the first few weeks of 2013 because it is doing something that hasn’t happened for years. It’s going upward. This rate behavior is causing people to now question whether the mortgage picture is about to change for a more costlier housing picture after years of the homebuyers being able to enjoy or refinance to the lowest mortgage rates in the last 50 years of home-buying.
To understand the risk of increase, a prospective borrower first needs to understand how the market got to where it is in the first place. It shouldn’t be any surprise to anyone that rates headed a lot lower after 2008. Much of this rate activity was due to the influence and manipulation of both the banking industry as well as, and more significantly, the federal government.
The government realized with the almost fatal credit freeze that occurred with the real estate crash that it needed to step in and right the boat. This was done in a number of ways. The most sensational was the takeover of major brokerages houses and banks and then turning them over to other banks, literally as handed over institutional assets. The more important task performed, and with less fanfare, was the stabilization of the mortgage market by taking bad loans off the books of struggling banks as well as tightening up the criteria that allows new loans into the system. The government also needed to shore up the government corporations that subsidized and regularly underwrote millions of mortgages to the banks that funded them.
All of these dynamic and previously unseen events contributed to the Federal Reserve as well as banks and lenders driving down mortgage rates lower and lower. The descending path was gradual but steady, going as low as 3.35 percent in 2012. With each decrease the hope and goal was to keep the market inexpensive, a life-support system until things got better and people gained jobs again with spending power. The second half of 2012 started showing signs of this improvement, but no one was willing to jump on the bandwagon yet and say the economy had turned.
That sentiment has now solidified into a confirmed recovery underway as of December 2012.The question now is whether the recent rise of mortgage rate averages to 3.5 percent and higher to 4 percent will sustain and continue or fall back again closer to 3 percent. For many who are now getting back on their legs and feeling the possibility of getting back into the home purchasing market, the issue matters greatly. A few point movements can mean hundreds of dollars each month in higher or lower loan payments, literally locking some out of the market quickly if the rate moves upward.So what can drive the rate back down again? Quite frankly, if the economic recovery stumbles again, it would have a direct effect on dampening and stopping any rate increase in the near future.
But a recovery stumble won’t happen because one or two corporations suddenly hit the rocks. To foul up a national economy, it takes a major mover to cause the effect. Congress and the President are two players who can do just that.Many think that the federal government is a waste of money and less of it would be a good think. It would result in markets that operate far more freely and with less regulation or bureaucracy. The reality is, while some of these effects would occur in some areas, a loss or drastic reduction of government would actually pull out a major source of funding into the American economy in a very short period of time. Federal government agencies spend billions of dollars monthly through contracts and procurement, in addition to basic labor hiring and temporary workforce hiring. If these sources of funding into the national economy are significantly curtailed or cut, it means losses of jobs and entire companies across the country. That’s the impact of sequestration and the coming federal budget cuts already in law and in store by March 2013 without any changes.
A sudden loss of momentum in the economy will definitely drive mortgage rate averages back downward. Where Mortgage Rates May Go in 2013While this may seem like a good thing for a homebuyer at the moment, it becomes a bigger question of whether anyone will have money to make the purchase. The loss of federal contracting and procurement will wipe out entire sectors of the economy, causing affected corporations to scale back due to loss of business and voided government contracting. When jobs are lost, people can't buy homes, which in turn causes ripple effects in lack of building and further economic consequences.
So, yet again, the near future of mortgage rates are at a crossroads, entirely dependent on factors that have nothing much to do with real estate supply and demand. If the economy can continue to recovery without any further loss of jobs or income sources, then mortgage rates will begin a steady climb upward again from their historic lows. However, if the politicians in Washington D.C. can't come up with an alternative plan to the sequestration cuts ready to roll, companies and employees across the U.S. will experience another wave of layoffs and retrenchment, potentially triggering a double-dip recession in the economy. At that point, the last thing on people's minds will be the ups and downs of mortgage rate averages.