As the end of the year approaches, we are beginning to look back over 2012 and think about how the real estate market and home finance has changed and evolved.
Here is something with a noticeable difference: mortgage rates.
The national average of the benchmark 30-year fixed rate rose 0.02 percent to 3.34 percent during the December 14 week according toFreddie Mac’s Primary Mortgage Market Survey. The survey noted that the average at this time last year was 3.94 percent. Roughly, this means that rates have dropped on average about 0.60 percent throughout the year – a large fall that ultimately hit record lows.
Mortgage rates have tumbled to record lows in part because demand for U.S. Treasury bonds has elevated throughout the year.
U.S. government bonds are viewed as a “safe haven” by investors. As demand for government bonds increases, their price increases and the “yield” at which they pay our drops. The 10-year Treasury yield has a direct relationship to the 30-year fixed mortgage rate. So when demand for the 10-year bond is high, its yield drops, and mortgage rates feel downward pressure.
With the European debt crisis and concern about the strength of the U.S. economy, investors have bough U.S. Treasury bonds in mass to avoid riskier securities.
The U.S. Federal Reserve has also played its part in lowering mortgage rates. Fed stimulus action has purchased rounds of U.S. Treasuries and mortgage-backed securities in moves called quantitative easing (QE), which has kept demand elevated. In QE4 announced this week, the Fed said it would keep rates low until unemployment has reached at least 6.6 percent, which isn’t expected to happen until late 2014 or 2015.