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Mortgage Rates Hit 4 Month Lows and Home Prices Soar in August

The housing market and home prices are continuing to rebound due to low mortgage rates and high home affordability. Mortgage rates hit record lows earlier this year and after rising sharply over the summer are heading back down again. Low rates and rising home prices have brought buyers back into the marketplace.

According to Freddie Mac, 30 year mortgage rates hit a four month low of 4.13 percent for the week ending October 24, down from the previous week's average mortgage rate of 4.28 percent. 15 year mortgage rates fell to 3.24 percent on average, down from the prior week's average of 3.32 percent.

Mortgage Rates Will Remain Low for the Rest of 2013

Fixed conforming average mortgage rates are heading lower and will continue to do so for the rest of the year. Before the end of 2013, average 30 year rates will be back under 4.00 percent which is a complete turnaround from the summer when it looked like 30 year rates would rise above 5.00 percent.

Mortgage rates soared 125 basis points higher over the summer on fears that the Federal Reserve would start tapering their purchasing of long term bonds and mortgage-backed securities. The Fed decided to continue their purchases and as a result, average mortgage rates have fallen again.

30 year rates won't hit the record low of 3.27 percent made earlier this year but will fall below 4.00 percent and probably as low as 3.75 percent on average. There are many lenders currently quoting 30 year refinance rates at 3.75 percent with points.

Home Prices Rise Further in August

The pace of home price appreciation over the past 12 months has been remarkable and has caught everyone by surprise. A recent report released this morning shows an acceleration trend of higher prices whereas most analysts believed price appreciation would start slowing.

The S&P/Case-Shiller Home Price Index released this morning showed that home prices in 20 large U.S. metro areas rose 12.8% from August 2012. The month over month again from July to August of 2013 was a strong 1.3% increase with Las Vegas leading the cities with an increase of 2.9% from July.

Double-digit home price increases are not sustainable because personal income growth is much lower. At this point, no one is worried about another housing bubble forming. In the second quarter of 2013, state personal income growth was only 1 percent according to the U.S. Department of Commerce's Bureau of Economic Analysis.

Pending Home Sales Continue to Move Lower

Pending home sales are down for the fourth consecutive month, which will keep a lid on future home price gains. According to the National Association of Realtors, home sales are down the past four months because mortgage rates moved sharply higher.

In the NAR's Pending Home Sales Index, home sales declined 5.6 percent to 101.6 in September. Higher home prices (which makes homes less affordable) and the government shutdown both played a role in declining home sales. You can view this video of Lawrence Yun, NAR Chief Economist speaking about the numbers:

Home Price Increases and Mortgage Rates in 2014

The pace of home price increases will slow in the coming year as prices get back to a more historical level. Home prices on average will increase 1 percent above the rate of inflation. The Federal Reserve's targeted range for inflation is 2 percent, which means home price increases are expected to be around 3 percent annually.

Fixed conforming 30 year mortgage rates will move back above 5.00 percent sometime in late 2014. This is because the Federal Reserve is now believed to keep the current round of quantitative easing (QE3) going until the first or second quarter of 2014. This easing will keep downward pressure on bond rates and mortgage rates.
Author: Brian McKay
October 29th, 2013