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Current Mortgage Rates Not Affected by Fed Cutting Bond Buying

Current Mortgage Rates Not Affected by Fed Cutting Bond Buying

Current mortgage rates were unaffected by the Federal Open Market Committee's decision to cut bond and mortgage-backed securities purchases in January. The FOMC's announcement was a surprise to most, as analysts believed the Fed wouldn't start tapering their buys until March or June of 2014.

10 year bond yields only rose 0.03 percent on the news and equities markets rallied, sending the Dow and S&P to record highs. Earlier this year, just the thought of the Fed slowing their purchases sent 10 year bond rates and mortgage rates soaring. Both bond rates and mortgage rates increased over 125 basis points in just a couple of months.

Fed Tapers to the Tune of $10 Billion a Month Starting In January 2014

The Fed handled this change in policy very well and the markets took it well. Although the Fed will start tapering in January, to the tune of $5 billion a month less in long term bond purchases and $5 billion a less per month in MBS purchases, the Fed will continue these buys until the end of 2014.

The Fed also said they will keep their key benchmark interest rate, the fed funds rate, near zero percent well past the point of an unemployment rate of 6.5 percent. In an overview of the FOMC participants' projections for the fed funds rate, 12 Committee members don't expect a need to increase the fed funds rate until 2015, while only 2 believe the need will come in 2014 and 3 members believe the need will come in 2016.

Higher Mortgage Rates are Coming Sooner Than Higher Deposit Rates

Current Mortgage Rates not Affected by Fed Cutting Bond BuyingThe change in the Fed's policy will slowly send mortgage rates higher from current levels. 30 year mortgage rates today are averaging 3.49 percent and will remain in a range of 3.35 percent to 3.70 percent for the rest of this year. In 2014, average 30 year conforming mortgage rates will increase to around 4.50 percent by mid-year and to around 5.00 percent by the end of 2014.

As for deposit rates, don't expect a big change in rates until sometime in 2015. Deposit rates are tied to the federal funds rate and right now a large majority of Committee members don't believe there will be any need to increase the fed funds rate until 2015. Current 1 year CD rates just above 1.00 percent will be with us until 2015.

15 Year Mortgage Rates Today on Conventional Loans

Average 15 year conforming mortgage rates today are currently at 3.52 percent, which is higher than last week's average 15 year mortgage rate of 3.46 percent. For the rest of this year, average 15 year rates will also remain near current levels and move higher in 2014.

By the middle of 2014, look for average 15 year mortgage interest rates to increase to 4.00 percent and by the end of 2014, average rates will be near 4.50 percent. Even with the increase in average rates this year and next, a 4.50 percent 15 year mortgage rate is still very low by historical standards.

Current 30 Year Jumbo Mortgage Rates

30 year jumbo mortgage rates are currently averaging 4.57 percent, up from last week's average 30 year jumbo mortgage rate of 4.53 percent. For the remainder of 2013, average 30 year jumbo rates will stay near 4.50 percent. For next year, look for 30 year jumbo rates to be around 5.00 percent by the second quarter and as high as 5.50 percent by the end of 2014.

For 2013, the spread difference between conforming rates and jumbo rates has been narrow. At one point this year, average 30 year jumbo rates were actually lower than average 30 year conforming rates.  The Fed's loose monetary policy over the past several years has made money cheap so to speak, which is why jumbo rates are not much higher.

Average 15 Year Jumbo Mortgage Rates Today

Today's mortgage rates on 15 year jumbo mortgage loans are averaging 3.89 percent, an increase from an average 15 year jumbo rate of 3.84 percent. For the rest of 2013, average 15 year jumbo rates will remain under 4.00 percent on the high end and will remain above 3.75 percent on the low end.

Looking into 2014, average 15 year jumbo rates will move above 4.00 percent to the 4.50 percent range by mid-year. By the end of next year, average 15 year rate will head towards 5.00 percent. Right now the lowest 15 year jumbo refinance rates quoted on our rate tables for California are at 3.75 percent with no points.

Author: Brian McKay
December 19th, 2013