Mortgage rates bounced back in surprisingly high fashion last week, just as the Federal Reserve meets tomorrow to reportedly approve another big cash infusion into the U.S. bond market. That move, dubbed “quantitative easing” by economists, is expected to drive mortgage rates downward, much like it did when the Fed tried this back in 2009.
Few mortgage industry observers saw the rate hikes coming, but who can blame them? Mortgage rates have been on a downward slide since last spring, and there was scant evidence of any economic news that would cause rates to spike upward.
But that’s exactly what happened as some rate categories really rocked mortgage rate borrowers. The 30-year fixed rate mortgage, as measured by the BankingMyWay Weekly Mortgage Rate tracker, rose almost 50 basis points, from 4.412% to 4.461%. Also, 15-year mortgages popped up from 3.826% to 3.882%.
The rate hikes came right on top of news that the U.S. economy had grown only 2% in the third quarter of 2010. That was a weak number, according to most economists, who say we need a much higher gross domestic product (GDP) number to spur the type of hiring activity needed to trigger genuine economic growth.
Normally, any weak GDP number is a sign that the economy remains in fragile condition, and that interest rates should remain low to spur the type of lending by banks and spending by consumers that is needed to kick-start the economy.
Despite last week’s rate shocker, that still appears to be the case as we head into the last two months of 2010. Besides the latest round of QE 2 (most economists expect the latest round of Federal Reserve “investment” to be between $250 billion and $500 billion, but we should know for sure by tomorrow), the housing market remains weak. So is U.S. unemployment, which ranges from 9.6% (the official government number) to 16% (the unofficial number which includes part-time workers and unemployed Americans who have ceased looking for work).