Mortgage rates have been marching steadily higher, from 3.00% to 4.25%, since May, 2013. In my last report, I discussed how it was important to keep things in perspective--it got uglier. Mortgage rates rose to as high as 4.625%, at the end of the week, and the mortgage bond market opened up last week, desperately looking for some sort of direction from the Federal Reserve Bank (FED). This whole rise started when FED Chairman Ben Bernanker suggested that it would "taper" the heavy bond-buying program, designed to subsidize mortgage rates. Bond traders were looking for clarification from the FED.
The FED delivered. All throughout last week, it was obvious that the FED was buying mortgage bonds, to force rates lower, each morning. It didn't work Monday or Tuesday. On both days, the bond market was up (positive for lower rates) but prices had waned by the close of the trading session. Traders listened to the FED governors, when they spoke and speak they did:
William C. Dudley, president of the Federal Reserve Bank of New York, said yesterday any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.” He said bond purchases could be prolonged if economic performance fails to meet the Fed’s forecasts.These comments were enough for the traders to calm down and start getting on the same side as The FED. As the FED bought bonds last week, traders started holding mortgage bonds rather than trading them and rates started stabilizing, then retreating. Today was no different--the bond market was slightly up today after three staright trading sesions of big gains. That's positive for mortgage rates.
Where do we go from here?
It looks like the bloodletting is over...for now. While it's unlikely that the FED will up its stimulus, to drive rates below 4.00%, it seems comfortable with mortgage rates at these levels. My best guess is that the FED will keep watching economic data with a special eye on unemplyment figures.
Today, conventional rates seem to be trading around 4.375% while government (VA/FHA) rates seem to be trading around 4.125%. Jumbo rates, for loans from $700,000 to $1,500,00, haven't recovered--they are still at the 5.25% range. Keep in mind that these rate indications are not quotes nor are they intended to be. Each borrower will have different challenges and strategies for limiting costs or lowering rates.
What should homebuyers do right now?
I'm still locking all loans at application. The FED has acted to stabilize the markets but it's still a mixed bag with that crew. Economic data will have to be watched and a trend of weakening or flat data will be need to be confirmed before I'm ready to float rates. That could come as soon as the middle or end of July but today, the risk is far too great to not lock rate.