It seems more and more likely that the ultra-low mortgage rates of 2011 and 2012 are a thing of the past, a once-in-a-generation fluke opportunity. Even though you're unlikely to get a 30-year mortgage at 3.4% like you could in December 2012, the current rates of right around 4.5% are still historically low.
While the initial spike in rates that occurred from May to September 2013 scared away some would-be homebuyers and refinancers, mortgage rates seem to have stabilized, which is generating a bit more business for lenders. Let's take a look at what's happening with mortgage rates and what may be in store this year.
As far as sales of existing homes are concerned, there was a very noticeable drop-off as soon as rates began to spike. Home sales had been on a steady climb over the past several years, and in August 2013 had hit their highest level since 2010. As a result of the rate spike, sales of existing homes plunged from almost 5.4 million to 4.9 million (on an annualized basis), a drop of 9.3% in just a few months.
Mortgage refinancing is down almost 70% from a year ago but is starting to stabilize as people begin to accept rates in the 4.5% neighborhood. The Mortgage Bankers Association reported that refinancing applications had increased by 5% over the most recent week for which data is available (the week ending January 4), and that was a week where rates were unchanged from the week before.
What's in store for 2014?
A look at the chart above indicates that even though rates have risen fairly quickly, they are still pretty low in a historical context. Mortgage rates were over 5% until early 2010, and were over 6% for most of the 2005 to 2009 years. Bear in mind that this was a time period when a lot of people bought houses, not just at higher rates, but at high prices, making their need for refinancing even higher.
While no one has a crystal ball, the Fed taper will likely give some stability to the market. One of the big reasons rates shot up was the prolonged anticipation of the Fed tapering.
The Mortgage Bankers Association is predicting 30-year mortgage rates will steadily rise to about 4.8% in the second quarter, and will hit 5% during the third quarter. If the rise is steady as predicted, it means rates will remain historically low for the first half of the year, and will begin to gravitate toward rates that may be high enough to discourage refinancing but would not necessarily discourage home sales.