Mortgage rates continue to climb to higher levels as the market prepares for an eventual Federal Reserve Bank decision to pull back from its bond-buying program.
The Fed has been buying $85 billion dollars worth of bonds and mortgage backed securities in an effort to keep mortgage rates at lower levels. If the Fed pulls back from its bond buying program, the expectation is for bond prices to go down in value and rates to go up.
Over the last several weeks, the markets have driven rates on the 10-year Treasury notes up over 100 basis points. Mortgage interest rates have gone up around 150 basis points.
The markets have likely priced in a good portion of the anticipated change, when the Fed does pull back on its stimulus program.
Economic reports have been fair to good. Housing starts were good for multi-family and less then stellar for single-family homes. House sales have been strong but appear to be showing the effects of rising rates, which have hurt affordability.
The latest employment report missed the consensus numbers and was generally a soft report. Additionally, there were downward revisions for the previous two months of employment numbers. The Fed has stated repeatedly that it will not raise the Fed Funds rate until employment goes to around 6.5 percent. Goldman Sachs, among others, does not think the Fed will raise rates until late 2015 or early 2016.
Corporate earnings for the latest quarter have been coming in with less then robust numbers. The earnings reports suggest that the economy may be slowing some in the second half of the year.
Housing inventory remains tight, and pricing remain at high levels. It does appear in the most recent reports and statistics that the rise in interest rates is dampening the rise in house prices.
The housing affordability index is showing the highest readings in years. House prices are clearly rising faster then wages.
This coupled with the spike in interest rates have made affordability more difficult for a lot of perspective home buyers.
Congress, which reconvenes in September, will launch into its divisive do-nothing mode of governing as the next round of budget talks take center stage. It will be another glaring mess of a lack of governing. This will likely be unsettling for the markets and ultimately the economy.
For the near term, expect volatile markets that do not always make sense. Interest rates will remain choppy and on the higher side. Keep focused on the prize of getting that house you want to live in. For your mortgage, simply get the best interest rate of the day and be happy.
Bill Starrels lives in Georgetown. He works as a mortgage loan officer. Bill can be reached at 703-625-7355 or firstname.lastname@example.org