Keeping an Eye on Mortgage Rates when Buying a Home in Jacksonville NC

The U.S. Federal Reserve on Monday bought $7.8 billion of U.S. Treasury bonds, part of its pledge to buy $600 billion by next June. The purchase seemed to put a damper on the U.S. Treasury slump, as the 10-year note rose 31.2 cents, and its yield dropped from 3.28 percent from 3.33 percent.

The Fed is still assessing how effective its $600 billion plan has been so far. Early indications are that it has probably helped a stock market rally, but – in case you haven’t noticed – bond yields have been up rather sharply in the past month. This is important to the housing industry because those yields are the benchmarks for mortgage interest rates.

Thirty-year mortgage rates averaged 4.61 percent last week, up sharply from a record low of just 4.17 percent three months ago. The jump has probably already discouraged some from refinancing, and those looking to purchase a home might be wise to assume rates are only going to go up.

Treasury yields have risen despite the Fed’s efforts, and, as mentioned above, the Fed is still deciding whether to keep its bond-buying efforts up. Also, the implication that a tax cut extension is coming and that the economy will improve will probably spark another short-term jump in rates, as bond investors will become uncomfortable.

Rising rates – at least slowly rising rates – are a sign of a recovering economy and are to be expected. However, the sharp jumps we’ve seen lately could slow an already sluggish housing recovery. Even so, it remains to be seen how much the Fed can, or will, control future rises. Mortgage rates might not jump again the way they have the past three months, but they are most likely on the rise for much of 2011, which is something to keep in mind if you are in the market for a house now.

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