Mortgage Market Update
Thursday, May 23, 2013
You know the old saying, "What goes up must come down", well, this is also true in the financial markets and with interest rates. As far as mortgage rates go an increase in the price of Mortgage Backed Securities (MBS) causes a decline in current mortgage rates. So, when MBS are in high demand from investors that causes mortgage rates to fall and vice versa. Also, heavily influencing rates is current economic activity. Interest rates generally move lower in a weak economic environment and go higher as the economy improves. The weak economic conditions in the US over the past 5 years has been the single biggest factor in causing the low mortgage rates we have been enjoying for a long long time.
The Federal Reserve Bank has also had a significant impact on mortgage rates as they have been actively buying MBS by the billions in an effort to keep mortgage rates down and improve the housing market. That has all clearly worked well as we are enjoying the best housing market in 5 years!
Over the past 10 days mortgage rates have moved steadily higher. Last week consumer confidence was reported significantly improved and the governments index of leading economic indicators was also quite positive. Both of these factors caused mortgage rates to start trending higher. Then, yesterday, Ben Bernanke, Chairman of the Federal Reserve Bank was testifying before congress about the state of the US economy. Investors are focused on if and when the Fed may curtail their massive bond buying program which has been the main factor keeping rates low. The Fed's focus has been to push interest rates lower to spur new economic growth. Once the Federal Reserve tapers off on it's accommodative monetary policy then interest rates will rise.
The comments made by Bernanke yesterday now make it appear that the Fed may taper off on it's aggressive program to keep rates low as early as next month. The market reacted to these comments and sent mortgage rates higher by .25%. Overall, mortgage rates have risen in the past 2 weeks from 3.5% to 3.875% today.
Although mortgage rates have moved up a bit they are still very attractive. For the balance of the year we could see them move higher but should still stay under 4.5%.
Ken Mascia, Licensed Loan Officer NMLS 135323
