Rates are still lower
Mortgage rates were lower in the week ended March 19, following the big spike in long-term borrowing costs the previous week. FMCC, or Freddie Mac, says the average 30-year fixed-rate mortgage fell to 3.78%, down from 3.86% the previous week. The rates are still lower than they were a year ago, when 30-year rates averaged 4.32%.
The average rate for a 15-year mortgage, popular with homeowners who refinance, averaged 3.06% the week ended March 19, down from 3.1% the previous week. These rates are still lower than a year ago when the 15-year mortgage was at 3.32%.
The Fed signals a rise in rates
Mortgage rates have remained low despite the Federal Reserve having ended its monthly bond purchase program. The Fed continues to keep short-term rates near zero, but it’s signaling that a rise in interest rates is around the corner.
While rates remain low, the cost of paying interest on household debt is now lower than at any time since 1980. Much of that debt is locked in at long-term rates that may not fluctuate much when the Fed raises rates.
A rise in mortgage rates should signal a pickup in economic activity, higher income levels, and greater confidence among homebuyers. If a rise in mortgage rates can be offset by a rise in the income level of buyers, that would bode well for homebuilding stocks such as KB Homes (KBH), Standard Pacific (SPF), and Pulte Group (PHM). It would also be good for the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB).