Looking Beyond the Squall

Sometimes, it is a good idea to look beyond the debris left behind by the squall and do an assessment of where things are.

Yes, interest rates have spiked from recent historical lows of several weeks ago when mortgage rates were in the middle three-percent range. However, mortgage rates are now moving in a relatively narrow range with the best execution for thirty-year fixed rate mortgages hovering in the mid four percent range.

Jumbo rates, for loans above $625,000 in the D.C. metropolitan market are priced very competitively to conventional rates. Rates on 15-year fixed rate money are below 4 percent for purchase rates. Adjustable rate mortgages, including seven-year ARMs are below 4 percent.

Today’s rates are similar to rates in late 2011. By historical standards, interest rates are in a very good range. The problem is that most people remember only the lowest of the low rates.
After the release of the mid-September FOMC minutes, Federal Reserve Chairman Ben Bernanke made a statement in order to calm the wild market reactions to his early speech from a week earlier which had caused a wild spike in interest rates and unease on Wall Street.

In his statement, Bernanke most notably referred to the unemployment rate. He said that the 7.6-percent unemployment rate overstated the strength of the labor market. This is very significant because the announced policy of the Fed has been that they would not think about raising interest rates until the unemployment rate was driven to 6.5 percent. Clearly, there is a long way to go for employment to get close to the Fed’s target.

By making these comments, the stock market regained its footing and the bond markets moderated. This helped mortgage rates go to the lower range of their recent range.

There will be increased volatility this summer. Economic news, good or bad, is likely to cause an occasional spike in the markets which will drive rates a little higher or a little lower depending on the news of the day.
Other economies are slowing, most notably China. The European Union is in the midst of stimulus for its economies. There are clearly a lot of pressures that should help the Fed keep rates in a relative narrow range this summer. ?

Bill Starrels lives in Georgetown and is a mortgage loan officer, who specializes in refinance and purchase mortgages. He can be reached at bill.starrels@gmail.com, or 703-625-7355.