Mortgage: Rates Jump Higher

Late May was the worst period for mortgage interest rates in recent years.

Before the turnaround in the markets interest rates on 30-year fixed conventional mortgages was in the mid 3-percent range. FHA government backed mortgages were 3.25 percent with lender credits towards closing costs. Fast forward and we find rates for conventional mortgages on single family houses now at 4 percent or slightly higher and rates for FHA mortgages now in the high 3 percent to almost 4 percent.

The catalyst for the jump in rate was the ramification from last month’s employment report. The report was simply much stronger than Wall Street was expecting. Before the report, the markets were pricing in anticipation of much weaker numbers. When the reports came in opposite where the markets were positioned, the severe correction took hold.

The labor participation numbers are another important factor in the economy. Fewer people are looking for work then are historically normal. This may be contributing to the lower unemployment numbers.

The next event that could upset the markets again is the next employment report. Another strong report will help solidify the current higher trends. If the report is not as strong as expected, then the markets could reverse the current trend.

Another catalyst is the Federal Reserve Bank’s asset buying program. There is great debate as to when the Fed will start tapering its buying program. The program includes the massive buy back of treasury notes, which has been helping to keep rates down. An industry newsletter, “Mortgage News Daily,” reported in late May, “The pendulum is swinging back from April’s extremes and is being accelerated by changes in the Fed’s asset buying outlook--even though no changes in the asset buying have yet occurred.” No one has a crystal ball. Clearly, the economy is showing some traction. A couple of weak notes including a slight downward revision to the first quarter GNP and a slight decrease in consumer spending. Lastly, the labor participation rates are low. Inflation is low and is not showing signs of increasing anytime soon.

Expect further volatility in coming days and weeks. Calmer waters are somewhere in the future. Until then, the ride will be turbulent. ★

+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.*

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Wed, 26 Nov 2014 23:21:04 -0500

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