Mortgage rates have been hovering around record lows lately, but a surge in the stock market Thursday sent rates up.
They came back down slightly Friday, causing people to wonder which way they are headed next.
The nearly 270-point increase Thursday in the Dow Jones Industrial Average, coupled with a dip Tuesday in Fannie Mae and Freddie Mac stock prices, hurt the bond market and drove mortgage rates up between 0.25 percent and 0.5 percent since Monday.
Fannie Mae and Freddie Mac are two of the largest investors and lenders of conventional mortgages.
The annual percentage rate on 30-year, fixed-rate mortgages are still between 5.5 percent, with 1 point origination and closing costs, to about 5.75 percent if only closing costs are paid. The average rate on those mortgages was 5.39 percent.
The rates aren't likely to continue ticking up, but no one knows for sure. "We still have indicators of a war taking place," said Matt Obele, mortgage broker at Northsight Mortgage Group in Scottsdale. "When war starts, you might see more people put their money into bonds or into the safe havens such as CDs. If it's as short as a lot of people think it will be, it should drop oil prices, increase confidence and we should see a stronger U.S. economy so more people will put money in stocks, which hurts the bond market."
If the Federal Reserve cuts the federal funds rate — the rate banks charges each other for overnight loans — on Tuesday, mortgage rates could go up or down.
In 2001, there were 13 Fed rate cuts and mortgage rates went down six times and up seven times following the rate cut, Obele said.
"The bond market works proactively and the stock market works reactively," he said. "Overall, if it sounds like they're going to cut rates, the bond market will make its adjustments before the cut is made and the stock market will make adjustments after the cut is made."
Friday the Dow Jones Industrial Average gained 30 points and the bond market improved slightly, which could lead to lower mortgage rates on Monday. "They might be slightly better depending on how Monday's market opens," Obele said. A decade ago, mortgage rates were in the double digits and a year ago they were about 7 percent. Rates were around 6 percent toward the end of October and have glided down since, with a few slight upswings.
"There isn't enough of a solid economical sentiment that would push it higher for awhile," said Eddie Straker, mortgage broker with Vista Mortgage Services in Scottsdale. "Eventually they'll come up, but that it's not going to get back up to the double-digit side."
"There's a lot of uncertainty in the world, consumer confidence is still extremely low, companies are still laying people off, it's $2 a gallon at the gas station and people are just unsure of what's going to happen," Straker said. "It really is going to boil down to what happens at the U.N. Nobody really has a crystal ball. (Rates) may jump a half a point or a point."
Mortgage rates have been the driving force in home sales for months now. Analysts say the housing market is one of the few bright spots in the economy. Last week, new mortgage activity reached record levels, according to the latest Mortgage Bankers Association of America survey released this week. The market composite index, which measures mortgage activity for new loans and refinancing, increased to 1603.2 on a seasonally-adjusted basis from 1265.4 the previous week. The previous record, set the week of Oct. 4, 2002, was 1317.
Nearly 80 percent of the mortgage activity from March 3 to 7 was refinancing of mortgages. Straker said some of his clients are refinancing for the second and third time in 18 months.