Minneapolis, MN: Mortgage interest rates have been near historic lows for a long time. Home buyers have fallen into a feeling that low mortgage rates are normal. That attitude changed a bit recently as mortgage rates jumped up to the highest level in over a year.
Interest rates on baseline 30-year fixed mortgage surged 12 basis points to average 3.9% in the week ended May 24, the highest level since May 2012. The upward trend went even slightly higher this week, with most lenders reporting best execution rates at 4.00%The slight up-tick in rates has caused many potential buyers to jump off the fence, and act now before interest rates go any higher.
So why are rates moving higher? It is complicated, as there are many factors, but the simplest explanation is that the economy is slowly getting better.
Another big reason is that the FED has been propping up mortgages by being the primary buyer of mortgage backed securities. Without them buying these securities, the entire mortgage system would collapse. While they have, and continue to say they will buy the securities for the immediate future, there are signs that this policy may be changing, with a pull back of the buying because of the improving economy
Simply put, rates may be slowly starting to return to where the market should be if supporting itself, and not being propped up by the Fed.
