Mortgage Rates Are Rising

Our buyers’ market of the last 6 to 8 months in the San Gabriel Valley and Southern California generally has seen some of the lowest mortgage rates in years. This week, mortgage rates are rising.

Perhaps this is the beginning of a trend toward higher rates. Perhaps not. But, this week mortgage rates are the highest since March.

The benchmark 30-year fixed-rate mortgage rose 6 basis points, to 6.26 percent, nationally, according to the Bankrate.com survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 6.61 percent; four weeks ago, it was 6.13 percent.

The benchmark 15-year fixed-rate mortgage rose 4 basis points, to 5.84 percent, and the 30-year fixed jumbo rose 9 basis points, to 7.47 percent. A jumbo loan in Southern California is any loan over $729,000. Adjustable-rate mortgages, or ARMs, went in the other direction. The benchmark 5/1 ARM fell 6 basis points, to 5.8 percent, and the 1-year ARM fell 8 basis points, to 6.14 percent.

The 30-year fixed hasn’t been this high since the March 12 survey, when it stood at 6.39 percent. A week later, it plunged below 6 percent, and then gradually rose to where it is today.

0-year fixed
15-year fixed
5-year ARM
This week’s rate: 6.26%
5.84%
5.8%
Change from last week: +0.06
+0.04
-0.06
Monthly payment: $1,017.01
$1,378.14
$968.14
Change from last week: +$6.44
+$3.54
-$6.32

Source: bankrate.com

The reason for the rise seems to circle back to Ben Bernanke, Chairman of the Fed, who last week i speaking to the International Monetary Conference, underlined that inflation is becoming a factor here as commodities, including oil, gas, wheat, rice, etc. are rising dramatically. Partly because of low interest rates, a tradition controlled and continued by Bernanke’s Fed, the dollar has weakened world-wide, so prices of these commodities, pegged in falling dollars, rise, fueling inflation here at home. This is certainly something we have all noticed, not only at the pump, but at the grocery store and, incrasingly, everywhere else.

Today, with a sluggish economy and little or negative job growth, we might face the infamous stagflation last seen in the early 80’s. In this scenario, inflation rises while the economy totters and stagnates. It’s a recipe for disaster, and Bernanke seemed to be telling everyone that he’s on it: interest rate cuts are over for good. We may perhaps even see a rise in the prime rate as soon as July.

What does this mean for the average home buyer or the investor? Do not try to time the market. If you want a house, buy one. In trying to buy exactly at the bottom of the current real estate cycle, you may wait too long. Prices may not go much lower and interest rates may rise, effectively raising the price of the property. The advice is ditto for investors. If you are trying to time the market, watch it very carefully, because these rates can go up quickly.

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