Mortgage Rates Peak; Investors Turn to Stocks

Fixed mortgage rates are continuing to trend higher, presumably on market speculation that the Federal Reserve will reduce future bond purchases. And investors are turning to stocks because other kinds of investments have proved disappointing lately.

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, showing that fixed mortgage rates are continuing to trend higher, presumably on market speculation that the Federal Reserve will reduce future bond purchases. The average 30-year fixed-rate mortgage for the week ending July 11, 2013, came in at 4.51 percent (plus an average of 0.8 points), up from 4.29 percent last week.

That’s the highest rate for mortgages in more than two years. This time last year, 30-year fixed-rate mortgages averaged 3.56 percent.

“June’s strong employment led to more market speculation that the Federal Reserve will reduce future bond purchases, causing bond yields to rise and mortgage rates followed,” Freddie Mac chief economist Frank Nothaft said in a statement, adding that the economy also gained more jobs than expected in June. “Moreover, hourly wages rose by 2.2 percent over the last 12 months and represented the largest annual increase in nearly two years.”

Also on Thursday, the U.S. Department of Treasury reported on its latest 30-year bond auction. The government sold about $30 billion worth of Treasuries with a yield of 3.66 percent. A year ago, the rate was 2.61 percent.

Investors Turn to Stocks 

Wall Street had an up day to beat the band on Thursday, with the Dow Jones Industrial Average gaining 169.26 points, or 1.11 percent. The S&P 500 was up 1.36 percent, and the Nasdaq advanced 1.63 percent. Both the Dow and the S&P 500 reached new record highs as a result of the day’s trading, with the former up about 18 percent for the year, and the latter up 17.5 percent.

The spike in the U.S. equities market came the day after Fed Chairman Ben Bernanke said, more-or-less, that QE3 might be headed for tapering, but the central bank wasn’t going to do anything to disturb interest rates. Still, the larger story might be that investors are turning to stocks because other kinds of investments have proved disappointing lately.

June, for instance, was a lousy month for bonds, and investors pulled about $28 billion from bond funds during the month, the most on record, according to ICI, a U.S. mutual fund trade organization, which began tracking in- and outflows in 2007. Commodities haven’t performed much better. Gold, for instance, has been dropping since its most recent high last October; since then, the metal has dropped 28 percent.