Freddie Mac publishes a national average for the 30-year fixed mortgage rate every Thursday. Though it inputs rates from a spectrum of banks, the survey average does a succinct job of broadly tracking what the market is doing. The first survey reading of 2013 (January 3) was 3.34%, just a step above the lowest ever recorded. By the end of the year (December 26), that number had jumped to 4.48%.
The highest 30-year fixed reading of the year was 4.58% back in August, and the largest week-over-week jump came between June 20 and June 27, when it jumped from 3.93% up to 4.46%.
The week-over-week jump of 0.50% was a formative step for the rest of the year in mortgage rates. We have written about this process at length (skip ahead of you remember all this).
2013 was the year of the Federal Reserve. With its quantitative easing program, the Fed purchased $85 billion in bonds per month, including $40 billion of mortgage-backed securities. With QE, the Fed helped pushed mortgage rates down to record lows by guaranteeing a large source of demand in the market for MBS.
Throughout 2013, the Fed was having such an impact on the market that even a whispered suggestion that it would reduce its policy had massive effects. Investors wanted to get in front of the decision to “price in” potential movement. The Federal Open Market Committee (FOMC), the Fed’s policy setting wing, said that it would adjust policy to U.S. economic performance. Investors interpreted news through these Fed-colored glasses, and this accounted for part of the volatility we saw with rates.
Most recently, the Fed decided to reduce its bond buying program by $10 billion per month ($5 billion MBS) in the new year. As the Fed continues to reduce its presence, mortgage rates will feel less downward pressure. We expect rates to drift up to 5% as the Fed continues to reduce quantitative easing.
Still, despite the 1% jump in the 30-year fixed in 2013, rates are still at the extreme-low end of the spectrum.
Zillow put together a brilliant chart that tracks mortgage rate movement since 1971. The takeaway is obvious. Real estate finance remains extremely affordable. Check it out:
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