While mortgage rates increased this past week according to separate reports from Freddie Mac and Bankrate, a home purchase is still affordable for the average buyer.
According to Freddie Mac's Primary Mortgage Market Survey, a 30-year fixed-rate mortgage averaged 4.37 percent in the week ending Feb. 27, up from 4.33 percent a week before. At the same time, a 15-year fixed-rate mortgage was 3.39 percent, an increase from 3.35 percent on a week-over-week comparison.
Frank Nothaft, vice president and chief economist for Freddie Mac, said mortgage rates likely increased as a result of new home sales exceeding expectations in January.
"Mortgage rates edged up with new home sales exceeding expectations and rising to a seasonally adjusted pace of 468,000 units in January, the strongest annual rate since July 2008," Nothaft said. "The 9.6 percent increase in new home sales for January followed an upward revision of 13,000 units in December. The S&P/Case-Shiller 20-city composite house price index rose 13.4 percent over the 12-months ending in December 2013."
A separate report from Bankrate echoed what the Freddie Mac report indicated. A 30-year fixed-rate mortgage increased to 4.49 percent, up from 4.48 percent a week before. However, a 15-year fixed-rate mortgage fell from 3.52 percent to 3.50 percent.
"Mortgage rates have been in a docile state over the past few weeks, as uncertainty regarding global markets has receded," read the report from Bankrate. "While the pace of the U.S. economic recovery is still an open question, things have transitioned to a wait-and-see mode that translates into tame movements in mortgage rates. The surge of monthly economic releases over the next ten days may answer some of those economic questions, and be a catalyst for renewed volatility in the bond market, and ultimately, mortgage rates. Mortgage rates are closely related to yields on long-term government bonds."
Home price gains easing
While mortgage rates are likely to rise in 2014 from their historically low levels of 2013, much of this is part of the housing market finding a healthy balance. Home sales increased early this year, and as a result mortgage rates went up. A market that is continuing to find its balance will bode well for buyers and sellers alike, as a separate report showed that home price gains are easing.
The latest S&P/Case-Shiller Home Price Indices indicated that national home prices increased 11.3 percent in 2013 compared to 2012. Year-over-year, the 10- and 20-city composites increased 13.6 and 13.4 percent, respectively. However, the report did show that in the short term, appreciation is easing. The national composite declined 0.3 percent in the fourth quarter compared to the third while the 10-city composite saw its second consecutive month of decreases in December.
"The S&P/Case-Shiller Home Price Index ended its best year since 2005," said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. "However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over. Year-over-year values for the two monthly Composites weakened and the quarterly National Index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum."
While robust home price appreciation was a welcome sign in 2013 - helping convince more buyers to put their homes up for sale - increases were often viewed as unsustainable. Therefore, any easing in home price gains is good for the overall market. While there will likely be more levels of inventory - because of the price increases last year - affordability will likely increase, as prices continue their descent in the short term.
Those buying a home in 2014 are encouraged to be thorough throughout the process. Anyone from a lender to a home inspection company can make all the difference in finding the right home at the right price.