28th January 2013
Mortgage rates blipped sharply higher last week after a trifecta of optimism hit the market. One of the biggest reasons interest rates are so low, is because of fear that the European Union is, and has been, on the verge of collapse. To stave off the collapse the ECB, Europe’s version of the Fed, lent out cheap money to banks throughout the continent to maintain liquidity in the system. Last week they announced that more than half the banks participating in the program will be paying off the loans as soon as they are contractually able to (this week). That is much better than expected, and a sign that the overall economy is in much better shape than has been projected.Rates dropped into their lowest range when the markets expected that the European Union was about to collapse, so this good news is indeed bad news for the lower trend in mortgage rates. Earlier in the week the initial unemployment claims number came in at 330,000, which meant 4 straight weeks of decreasing unemployment. This gauge is now at its lowest point since early 2008. No one is saying that the job market is great, but this is more evidence that the economy is gradually improving. Which brings us to the third hit of the trifecta of optimism, the Fed. Probably the biggest reason mortgage rates have stayed so low, is because the Fed Open Market Committee has continued its policy (the latest twist on qualitative easing) of buying back mortgage bonds specifically to keep rates low and encourage growth in the housing market. They have previously announced that they will continue this policy until unemployment hits 6.5%, or inflation risk is too high. This week, 2 Fed members made comments that were interpreted as being willing to halt the program at an earlier date or with a higher level of unemployment.
This week is going to be a critical week and is expected to be extremely volatile in the mortgage backed securities market, which directly impacts mortgage rates. The FOMC meets Tuesday and Wednesday and will announce their policy statement at the end of the meeting. It is expected to stay the same, for now, but any change in wording will be parsed for hidden meaning. On Friday the Jobs report for January will be released, which is always the most anticipated report for the month, and spikes in rates often come with better than expected numbers. We will also get more data of what is happening in Europe. If optimism continues, mortgage rates could continue to climb.
If you have any questions or want to go over your situation in depth, let me know how I can help.
You can trust in us to get the job done.
Peter Thompson 630-479-6424
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