CHARLESTON, W.Va. - A sudden pop in interest rates earlier this month sent a chill through the state housing market, but officials at the state's mortgage financing agency said the panic was short-lived.
David Rathbun, senior director of single-family loans at the West Virginia Housing Development Fund, said the agency saw a noticeable drop in home purchases following the spike.
"People were just shell-shocked," Rathbun said. "They didn't know what to do."
Fortunately, the spike was short-lived. Rates leveled off and buyers jumped back in.
Now the concern is how looming monetary policy changes could affect rates going forward.
"These are uncharted waters," Rathbun said.
Federal Reserve Chairman Ben Bernanke roiled global markets last month when he indicated the central bank might taper some of its stimulus programs sooner than many analysts had expected.
In addition to keeping its short-term borrowing rates near 0 percent, the Fed has also been buying up $85 billion in long-term U.S. Treasury bonds and mortgage-backed securities - a process known as quantitative easing - to keep interest rates extraordinarily low.
When Bernanke signaled the Fed might begin cutting back on its bond purchases later this year, it kicked off a massive sell-off in the bond market, driving interest rates sharply higher. As bond rates went up, mortgage rates followed.
The average rate on a 30-year, fixed-rate mortgage jumped more than half a percentage point in the week after Bernanke's comments, according to a weekly survey by national mortgage giant Freddie Mac.
The jump from 3.93 to 4.46 percent that occurred that week was the largest weekly increase in mortgage rates since April 1987. Rates fell back slightly the following week but seemed to level off. Last week, Freddie Mac reported the average rate was around 4.51 percent.
The good thing about the increase was the fact that it was a bounce off of historic lows in mortgage rates. Economists believe the national housing market will be able to weather the shift.