Mortgages shimmy down after a tempestuous rise

Mortgage rates eased this week, but they are still significantly higher than the rates homebuyers and refinancers got used to seeing before the recent spike.

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30 year fixed rate mortgage 3 month trend

30 year fixed rate mortgage 3 month trend

30 year fixed rate mortgage 3 month trend

The benchmark 30-year fixed-rate mortgage fell to 4.48 percent, compared with 4.61 percent last week, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.29 discount and origination points. One year ago, that rate stood at 3.87 percent. Four weeks ago, it was 4.1 percent.

The benchmark rate on the 30-year fixed was 3.52 percent May 1 -- so it is still almost 1 percentage point higher than it was two months ago.

The benchmark 15-year fixed-rate mortgage fell to 3.62 percent this week, compared with 3.73 percent last week. The benchmark 5/1 adjustable-rate mortgage rose to 3.48 percent from 3.45 percent. The benchmark 30-year fixed-rate jumbo mortgage fell to 4.66 percent from 4.75 percent.

Weekly national mortgage survey

Results of's July 2, 2013, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:4.48%3.62%3.48%
Change from last week:-0.13-0.11+0.03
Monthly payment:$834.07$1,189.30$739.08
Change from last week:-$12.78-$8.98+$2.75

All eyes on Friday's jobs report

Whether or not this week's downward trend will continue depends on how investors will react to the June monthly employment report that is scheduled to be released Friday, says Michael Becker, a mortgage banker at WCS Funding in Baltimore.

"We've seen a slight improvement in rates and more of a stabilization in the last couple of days," says Becker. "But Friday will be very important."

The employment report, released by the Department of Labor on the first Friday of every month, is a closely watched economic indicator and has always influenced the direction of mortgage rates. But the report will be more important than ever from now on, Becker says, as investors wait to see when the Federal Reserve will slow the pace of its bond-buying program.

Before rates spiked, Federal Reserve Chairman Ben Bernanke said the Fed would end the $85 billion-a-month stimulus program by mid-2014 if the unemployment rate hits 7 percent by then. The unemployment rate in May was 7.6 percent.

A positive jobs report could put upward pressure on rates, as it would be an indicator that the Fed is on track to end the program next year. If the report disappoints and shows economic growth has slowed, mortgage borrowers would likely see another drop in rates.

Higher rates affect first-time homebuyers

Last week's spike -- when the 30-year fixed rose by about half of a percentage point -- resulted from a market overreaction to the Fed's statement, says Mike Loftin, executive director of Homewise, a nonprofit mortgage bank in Santa Fe, N.M.

The higher rates caught many of his clients by surprise.

"We work with first-time homebuyers, and they are way more sensitive to pricing than others," he says. "When rates go up a (percentage) point, their purchasing power goes down."

Coupled with rising home prices and the tight inventory of homes for sale, higher rates can be a deal breaker for some first-time homebuyers, especially those who seek lower-end homes and already struggle to find a home that fits their budgets, Loftin says.

Home prices keep rising

Home prices nationwide increased 12.2 percent in May compared to a year earlier, according to a report by CoreLogic, released Tuesday. And the trend is expected to continue this summer.

"It's been more than seven years since the housing market last experienced the increases that we saw in May, with indications that the summer months will continue to see significant gains," says Mark Fleming, chief economist for CoreLogic. "As we approach the halfway point of 2013, home prices continue to respond positively to the reductions in home inventory thus far."

But if you are thinking of buying a home, don't let the pressure of higher prices and higher rates rush you to making a decision, says Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.

"Mortgage rates are climbing fast, and many people may rush into a homebuying decision as a result, hoping to avoid higher borrowing costs," she says. "Don't be in a hurry and buy the wrong home at the wrong time."

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