Mortgage Rates Hit Four-Month Low

Easing concerns about the Federal Reserve, and an absence of good news in the broader economy, have pushed mortgage rates back down to a four-month low. According to Freddie Mac's Primary Mortgage Market Survey, the average rate on a 30-year fixed-rate mortgage is currently at 4.1%. This is the lowest level since the middle of June.

Over the last year, the otherwise sleepy mortgage market has seen its fair share of volatility. On the heels of the Fed's announcement in September of 2012 that it would initiate a third round of quantitative easing, this one aimed specifically at reducing mortgage rates, the cost to borrow on a home fell to historic lows, bottoming out at 3.31% last November.

Source: Freddie Mac

Although the move was much castigated in the press, it seems to have accomplished its objective. Sales of both new and existing homes skyrocketed in the summer months, and home prices followed suit. According to data from CoreLogic, these trends contributed to 2.5 million homeowners regaining positive equity in their homes in the second quarter alone.

Beyond this, the lower rates fueled a tsunami of refinance activity, which boosted the bottom lines at many of the nation's largest banks. With the most recent quarter aside, Wells Fargo reported an unprecedented seven consecutive quarters of $100-billion-plus in mortgage originations.

However, much of this came to a screeching halt in May, when the central bank intimated that it could begin to taper its monthly purchases of Treasury bonds and mortgage-backed securities if the economy continued on its then-upward trajectory. The news sent mortgage rates tearing higher, topping out at 4.58% by the end of August.

The quick acceleration in borrowing costs has since been blamed for the recent slowdown in both new and existing home sales, as well as in the mortgage market.

In the third quarter of this year, the five largest mortgage originators reported a combined 21% drop in mortgage volume. Wells Fargo led the way with a 29% drop, followed by JPMorgan Chase , the nation's second largest mortgage underwriter, which reported an 18% sequential decline.

At this point, any immediate impetus for a move by the Fed seems to have stalled thanks to the economic repercussions from this month's government shutdown and debt standoff. Consumer confidence is waning, and a number of other official statistics suggest that the economy is not yet ready to stand on its own two feet.

It's this bad news, in turn, that led to the reversal in mortgage rates, which began in the middle of this past September. While it's too early to say exactly what this will mean for the mortgage market, much less for home sales, it's safe to conclude that the volatility won't be over anytime soon.

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