Interest rates are now up about 1% from their rock bottom lows of a few months ago. The inevitable interest rate increase from all-time lows is continuing. Investors have continued to sell stocks and bonds following the Federal Reserve meeting last week. It seems that if the economy performs as expected, then the Fed plans to taper its bond purchases later this year. Over the past few years, the Federal Reserve bond purchase program has helped mortgage rates decline to historically low levels. This occurrence has lifted the stock market. So any sign of the withdrawal of stimulus has hurt both stocks and bonds.
However, even though interest rates are volatile, they do not move in a straight line up and down. They have been moving so fast the last few days. I am guessing there will be a pull back soon and rates may fall back a bit. That is conjecture and anyone contemplating a mortgage these days needs to be aware that the mortgage market is highly volatile right now. The rapid rise in mortgage rates has been shocking, but it had to happen at some point.
To boost the economy during the financial crisis, the Federal Reserve undertook an unprecedented program to purchase enormous quantities of mortgage backed securities and U.S. Treasuries in an attempt to push rates down. Before the Feds started this program, rates were about 1.5% to 2% higher, so it makes one wonder if that is where we are headed again. We are already a good bit of the way there!
It seems the Federal Reserve believes the economy is no longer in recession. As a result the Federal Reserve has indicated that it appears ready to scale back its bond purchases.
So what you are witnessing with the rise in rates is the market trying to determine the realistic range of mortgage rates without the intervention of the Federal Reserve. Millions of humans and corporations try and guess the direction of the market and react in advance for their own profit. So clearly the market is signaling that it believes the Feds are done with their stimulus, and that this stimulus inflated stocks and pushed down rates. Now it seems we will see the markets reconfigure to the new realities.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
