"Rates rose in response to stronger economic data and an increasing chance that the Fed may soon begin to taper their asset purchases "
-Mike Fratantoni, MBA's vice president of research and economics
Concerns that the Federal Reserve may soon slow down the pace of its stimulus programme sent mortgage rates to the highest level in a year. A report by the Mortgage Bankers Association showed that borrowing costs on fixed 30-year mortgage rates rocketed 12 basis points and reached an average of 3.9% in the week ended May 24. This is the highest level since May 2012 and the biggest increase in 14 months.
Despite the surge in mortgage rates the gauge of loan requests for house purchases, which is considered a leading indicator of home sales, increased 2.6%. Last week the Fed's Chairman Ben Bernanke suggested the Fed could scale back the pace of its monthly bond purchases in case the economy will continue gaining pace. Soon after his speech investors expressed concerns that the Fed's ultra-loose monetary policy could be winded down sooner than it was initially expected.
At the moment the Fed is buying $85 billion in bonds and mortgage-backed securities per month in order to keep borrowing rates at record low. The Fed's actions have already helped the housing market to lure in buyers off the sidelines. Another fact that is pointing at the stabilization of the property market is that home prices saw their biggest annual increase in almost seven years in March.
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