Relief for mortgage rates2013 was the first year in seven in which mortgage rates rose, and 2014 was expected to see more of the same. The economy appeared to be strengthening, and in December the Fed announced it would start cutting back its quantitative easing program. That program had been seen as instrumental in driving mortgage rates down to record levels. So far though, 2014 has defied expectations. Thirty-year mortgage rates were at 4.53 percent on January 2, but had fallen to 4.23 percent by February 6. This drop comes as a relief to prospective home buyers, but existing home owners also have reason to cheer lower rates: Low mortgage rates create refinance opportunities, and generally support property values.
Does this take the Fed off the hook?Under different circumstances, the Fed might also welcome lower mortgage rates. Throughout last year, there were continual debates about how the Fed could back off from quantitative easing without sending mortgage rates so high they would choke off the housing rally and dampen economic growth. Instead, the Fed has now taken two steps toward tapering its monetary stimulus, and rates have fallen rather than risen. Does this get the Fed off the hook for any potential adverse effects of tapering? Not exactly. After all, starting last May, mortgage rates rose by more than a percentage point in anticipation of Fed tapering, so even with the recent easing of rates, they are still much higher than they were a year ago. Also, current mortgage rates reflect a series of disappointing economic news releases, which is hardly something the Fed could have wished for. After all, the idea of bringing rates down in the first place was to stimulate the economy.
Business as usual for deposit ratesFor now, it is fair to say that mortgage rates have abandoned their upward course, and it will take either some more positive economic news or signs of inflation to send them higher again. Though current mortgage rates are higher than they were a year ago, they are still much lower than historical norms.
There has been no such change of course for rates on CDs, savings accounts and money market accounts. These remained unchanged throughout last year, having hit bottom and then appearing dead in the water. As the recent downturn in mortgage rates suggests, the deteriorating economic news of late should only prolong the time deposit rates spend near zero.In an economic story with so many twists and turns, improved growth may yet revive deposit rates later in the year. For now though, the only way consumers can earn higher rates is by active comparison shopping.