Record 2012 Mortgage Rate Highs and Lows Continued into 2013

The 2012 Mortgage Rate Highs & Lows That Spurred Mortgage Borrowing Through 2012 Had a Big Impact on the Housing and Mortgage Markets, and It Continues Through Q1 of 2013.

2012 Mortgage Rate Highs & Lows

2012 was a watermark year for mortgage rates, with some of the lowest lows seen even, and certainly since the financial crisis. 2012 mortgage rate highs and lows for the year reached incredible levels, which was surprising because it came as a result of an ambitious Federal Reserve decision. Freddie Mac and Fannie Mae were at the heart of the mortgage crunch and the sub-prime lending debacle that precipitated the financial crisis in 2007 and 2008. They both received significant government support, but it wasn’t enough to prevent thousands from losing their homes in foreclosures. Despite the damage that this did to the home lending market, it seems to have rebounded healthily on the back of economic growth and aggressive fiscal moves by the Fed.

The benchmark for home mortgages is the 30-year-fixed-rate mortgage, the same tool that people have been using to buy homes for nearly 100 years. Averages for this mortgage rate hit a record low of 3.49% in July and again in September of 2012. For 15-year-fixed-rate mortgages, the new record low was also set in September at 2.77%. Even the highs for these mortgage rates never got very high, barely flirting with the other side of 4%.

Some weren’t surprised by this trend. The Fed had been rumbling for most of the year that it wanted to take action to exert further downward pressure on mortgage rates, despite the fact that averages had remained below 4% all year. Nonetheless, Reserve chairman Ben Bernanke’s announcement that the bank felt its “overly tight lending practices” might be holding back the U.S. economy, accompanied with a plan to buy $40 billion in mortgage-backed securities to ease access to mortgages, was met with some surprise.

The fed argued that after a spate of credit tightening measures enacted beginning in 2008, the pendulum had swung “too far in the other direction,” and some loosening was necessary. The goal was, of course, to give reliable borrowers more and more affordable access to mortgage loans so they could buy houses that were well within their means.

The move had another impact on the markets though. First, it served to make banks into the big winners. More people streaming into banks to get mortgages and refinance their old mortgages as lower rates means a lot of commissions and fees for banks. Those fixed fees when a borrower closes on a mortgage or refinancing are one of the main ways banks make their money. This isn’t necessarily bad, but it’s worth remembering if you’re a potential borrower and you see lower mortgage rates as a reason to rush out in the future. The bank is getting its money no matter what.

Secondly, and much more clearly positive, it helped push more buyers into the market, increasing property values. There is a related reason why more access to mortgages may have contributed to rising home values. Lower mortgage rates gave homeowners the ability to refinance and reduce their mortgage payments, decreasing the discount rate on the value of their equity. Higher perceived future value on homes tends to make homes more desirable, increasing demand and price. Furthermore, this lower rate makes repaying a home mortgage easier, because it gives homeowners more time to complete repayment, again helping people to be more interested in buying a home.

It’s worth noting that this trend in extremely low 2012 mortgage rate highs and lows continued into 2013. The fed continued it mortgage-backed securities purchasing throughout the year, and defied expectations by maintaining that strategy through the first several months of 2013. This eventually pushed rates down to 2.56% for 15-year-fixed-rate mortgages and 3.35% for the average 30-year rates. This has continued to help spur home buying, putting a bit of upward pressure on home prices and keeping the housing market relatively healthier than it’s been in a while.

This also makes it one of the best times to get a mortgage. Many mortgage experts expect rates to start climbing in the second half of 2013. This is because the economy continues to seem like it’s getting better, which makes for more borrowers with better credit and thus more demand for mortgages, and leads the government to reduce its growth-oriented measures, like the securities buys the Federal Reserve has been using for the past 18 months. Once the Fed stops making these buys and the market heats up, rates should begin to behave more naturally and get above 4%. So if you want to lock in a mortgage at or near the lowest rates in history, now is the time to do so.