While 30 year mortgage rates are still down 50 to 60 basis points as compared to last year, there’s been an increase in rates over the past two weeks. According to Bankrate’s recent national survey, rates are up 10 basis points or at 3.62% as compared to 3.52% during the week of December 3rd, 2012. This is somewhat head-scratching given the Federal Reserve’s announcement to purchase up to $45 billion worth or mortgage-backed securities per month to try to keep rates low. What should you make of this recent rise in mortgage rates?
Why are rates rising?
A few months ago, we highlighted the Federal Reserve’s shift in monetary policy to purchase mortgage-backed securities each month until further notice. When the Federal Reserve first enacted this policy, mortgage rates fell further and reached all-time lows. Why all of a sudden are rates starting to rise even though the Fed’s policy hasn’t changed? We’re seeing a shift from investors out of the bond market and into equities. When this occurs, the bond value of mortgage-backed securities generally falls and rates rise. Please note that bond prices and interest rates are inversely related. Furthermore, investors appear to be expressing optimism that the housing market is beginning to rebound and lawmakers will reach an agreement regarding the long-debated fiscal cliff.
Will rates continue to rise?
We believe this is a short-term blip on the radar screen as rates also rose in the beginning of October and then fell right back to the 3.50% level. Although we are encouraged by some of the positive economic news of late and investor sentiment, we believe there’s still significant uncertainties related to the labor market, consumer sentiment and tax legislation going forward. We believe it’s highly probably that we’ll receive negative economic news again in 2013. However, it’s also important to be mindful that the window for ultra-low mortgage rates may begin to close as the trend may start to move upward if more positive economic news is announced.
More questions? Browse answers or ask your mortgage questions online.
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