Summer Mortgage Rates Enter 4% Range; First Time Since November

Home buying activity typically picks up during the summer months, as families with school-age children attempt to move while school is out. But rising mortgage rates could cause some buyers to put their plans on hold. According to the latest survey data reported by Freddie Mac, summer mortgage rates are 0.21% higher than they were at the start of 2015.

Earlier today, Freddie Mac released the results of its latest mortgage lender survey. According to that report, the average rate for a 30-year fixed mortgage loan rose to 4.08%. That was a slight increase over the previous week’s average of 4.02%, and an increase of 21 basis points (0.21%) since January 1, 2015.

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The average rate for a 15-year fixed mortgage also rose this week, climbing from 3.21% to 3.24%. Five-year ARM loan rates are still hovering around 3%, while the average for a 1-year ARM is at 2.52%.

Summer Alert: 30-Year Mortgage Rates Rise Above 4%

For the first half of 2015, the average rate for a 30-year mortgage hovered below 4%. This is based on the weekly market survey conducted by Freddie Mac. But at the start of the summer, long-term mortgage rates rose into the 4% range.

During the second week of June, the 30-year average rose above 4% for the first time since November of last year. Long-term mortgage rates have been hovering in that range for the last few weeks, with a slight upward trend.

Federal Reserve Waits for 2% Inflation

Summer mortgage rates are still very attractive. They have remained at or near historically low levels for many months, largely in response to the Federal Reserve’s stimulus program.

While the Fed does not directly control mortgage rates, its stimulus measures do have an indirect influence. For several years now, the Fed has been purchasing mortgage-backed securities and holding the federal funds rate near 0% in order to stimulate a sluggish economy.

The question is, when will the Fed change its current policy, and how might this affect mortgage rates going forward?

At their last regularly scheduled committee meeting, Fed officials stated they were content to preserve the status quo for now. They also said they would likely raise the federal funds rate when inflation hits 2%. That’s the key benchmark that will cause them to adjust their monetary policy.

According to the Federal Open Market Committee (FOMC), an inflation rate of 2% “is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment.” Their monetary policy is designed to keep inflation at around 2% over the medium term. So when U.S. inflation rises to this level, the Fed will likely raise the federal funds rate. This could eventually lead to an increase in long-term mortgage rates as well.

Many analysts expect the central bank to adjust its monetary policy in September, during their fall committee meeting. But we’re getting into the weeds of speculation here.

Creating Urgency Among Home Buyers

The bottom line is that summer mortgage rates are rising, and they could rise further between now and the end of 2015. This is creating a sense of urgency for many home buyers, especially those who are in housing markets where home prices are also rising. When home prices and mortgage rates rise at the same time, it greatly reduces housing affordability. So, from a purely financial perspective, home buyers might be better off making a purchase sooner rather than later.

Disclaimer: This story contains summer mortgage rate trends and other data that are deemed reliable but not guaranteed. It also contains forward-looking statements about the economy in general. We make no claims, guarantees or assertions about future trends within the mortgage industry or the broader economy.