Homebuyers are benefiting from an unexpected drop in mortgage rates that defied forecasters who said the Fed’s move to taper its economic stimulus program would cause rates to jump.
The average rate for 30-year fixed mortgages dropped to 4.23% last week—an almost three-month low, according to Bloomberg, and 0.3 percentage points beneath what rates were to start 2014.
“I was surprised by what happened in the bond market,” Douglas Duncan, chief economist at Fannie Mae, told Bloomberg. “Everyone was surprised. It was completely unexpected that mortgage rates would fall after the Fed began tapering.”
In December 2013, the Federal Reserve announced a $10 billion taper to its quantitative easing program, which has been purchasing $85 billion of mortgage-backed securities. While widely expected this would cause mortgage rates to increase in 2014’s first quarter, the opposite has happened, benefiting prospective homebuyers.
“People are getting a second chance, and that is bound to give a boost to the housing market,” Sam Khater, deputy chief economist at CoreLogic Inc., said in the article. “It’s not a game changer unless the emerging markets situation worsens and rates get even cheaper.”
Fannie Mae, Freddie Mac, the Mortgage Bankers Association, and the National Association of Realtors are among those with January forecasts that mortgage rates would increase by at least 0.3 percentage points in the quarter, Bloomberg reports.
“Instead, yields on 10-year Treasuries, which are used as a benchmark for mortgage rates, shrank as investors drove up bond prices,” says the article.
The Federal Reserve’s new chair, Janet Yellen, stated during a recent Congressional hearing that the Fed will continue on its planned course to taper QE, and only a “notable” economic outlook change would slow the pace of the wind-down.
Still, the drop in rates isn’t expected to last.
“For someone in the market to buy, it’s an opportunity to turn back the clock on rates, but there’s no indication it’s anything but a temporary reprieve,” said Duncan. “In the long-run, the Fed’s exit means sustained upward pressure on rates.”
Read more at Bloomberg.
Written by Alyssa Gerace