After a nice calm 3 weeks where mortgage rates drifted slowly and gently down, we’re re-entering a period of volatility in the bond market, and the effect is MORTGAGE RATES INCREASING.
Again the FED is ruling our world.
The issue at hand is “tapering” – so the FED has been buying 85 billion dollars of bonds and mortgage backed securities per month since last fall (aka QE infinity). The idea being that when the economy shows sustainable improvements, that the FED could reduce (taper) and eventually discontinue their bond buying plan.
Now this 85Billion makes the FED the single biggest buyer of bonds in the US, and the effect of this bond buying is LOW MORTGAGE RATES. When bond issuers need to attract more buyers, they must RAISE THE OFFERED YIELD on their bond. Mortgage rates are derived off these yields, so when the FED TAPERS, FNMA is forced to increase their yield to keep buyers coming.
So this week has shown some apparently favorable economic data, which NORMALLY would cause the stock market to increase. HOWEVER, in our FED influenced bizzarro world, good news means: TAPER IS COMING IN SEPT- which means- RATES WILL PROBABLY INCREASE.
We had a huge spike in May when Bernanke first mentioned that this tapering could happen in Sept. Many believe that the taper is already priced into rates, and I’m one of those people. But the upshot is sneaky volatility in the meantime. I’m inclined to lock any loans as soon as I can right now.
Long term, I still think that European financial system is nowhere near what anyone needs it to be, and we’re one more Greek bailout away from another runaway interest rate train.
Think about it: base on the bond market/yield dynamic I just wrote about- When Europe gets shaky, all the money marked for Euro bonds, flows into US Bonds, which is super awesome for lowering our US mortgage rates.
For shopping around this weekend you can use these rates to guide you:
30YR conforming is at 4.625% /APR 4.741
15YR conforming is at 3.5%/APR 3.726
FHA 30YR is at 4.25%/APR 4.479