Just sayin’ cause this whole marketing campaign letting everybody know clearly that the Fed is looking for substantially higher interest rates is working. This morning we saw the highest mortgage rates of 2013, and we aren’t done according to most Industry Analyst… and you can bet that Higher Mortgage Rates keep on coming.
Yesterday’s sell-off was not a knee-jerk reaction and the market is not going to bounce back in three or four days… this is a long term strategy orchestrated from the top by the Fed.
CNBC Announcers this morning said, “The quicker you get off the drugs, the faster you can clean up your life,” metaphorically relating the Mortgage Program the Fed has been pushing on Wallstreet to a drug addict. Currently the Fed purchases $85 billion per month in mortgage backed securities through the QEIII program.
Ben Bernanke’s announcement that the Fed soon plans to make lower levels of monthly bond purchases saw prices tank yesterday (meaning every hour or so we got rate increases). The market rebounded today on a weaker than expected initial jobless claims report, but reversed course once again on a stronger existing home sales report, as Higher Mortgage Rates kept getting updated.
In my way of thinking, the home numbers, in particular are “backward” looking reports. The Housing market has slowed down. You don’t need to wait to see that. Call any agent – they’ll tell you two interesting things. People on their street who are tired of living in a four bedroom home when all of their sons have graduated from college – and they think now is the best time to sell.
Buyers, on the other hand, are spooked by the higher rates – and are re-evaluating their rent versus house payment now. It might make more cash flow sense, if rates get over 4.5%, for them to hang out a while longer. the Media types are saying a 4.5% rate won’t KEEP someone from buying a house – no, but when they’ve been looking for 12 months for a house thinking their budget and payment matched one with a $1200 a month payment… and now they will be paying $1400 a month for that house, that will sure cause a pause in the forward momentum.
You can go to Google Trends and see the search terms for “First Time Home Buyer” key phrases are down over 35% from this time last year. Did I mention Mortgage Rates have continued to go up? And those Sellers that we’ve talked to – they expect TOP DOLLAR for their homes that they’ve been updating and renovating for the past 5 years.
“We are at a point in time in the industry when people who own Mortgage Backed Securities fully expect the number one player (The Fed) to pull back, which will crush mortgage rates,” one Analyst said. Understandably, as reports come in showing SOME improvement in the Real estate markets – The Fed is moving in reaction to this growing economy. At some point this extraordinary stimulus we’ve seen for the past five years needs to be taken away so that we do not risk overheating and inflation.
“The only thing that can help is if we get a surprise with some weaker than expected economic data. We aren’t getting that. Even if we did, we still only expect MBS to pause for a brief respite before they start another downward trend,” said another Economist as he reflected on how much mortgage rates have spiked.
Right now, 90% of mortgages are backed by the government.
While the majority of consumers and media entities are focused on interest rates, I suggest there are much bigger issues than interest rates.
Chairman Bernanke indicated today that Fed is likely to begin reducing the amount of MBS and Treasury securities it is buying each month beginning later this year, and may halt these purchases by the middle of next year.
David Stevens, the CEO of the Mortgage Bankers Association put it this way:
The Fed will eventually have to exit the market and stop purchasing mortgage backed securities.It’s a matter of if, not a matter of when. We need a thoughtful “detox” program that eases the Fed out of the MBS market and allows private capital back in.
Interest rates for a thirty year, fixed rate mortgage have risen to just above 4 percent, and should stay there for the rest of the year.Will refinancing slow down even further? Yes, we are seeing a burnout in the refinance market. Everybody who can refi already has at 3.5 percent, so there is no incentive to refi at 4. But the larger point is that this slight increase in interest rates will not prevent people from purchasing homes. This is not what will hold back the housing recovery.
Tight credit standards and availability of homes are holding back the market.
Single family starts are expected to increase gradually through 2013 as home prices continue to improve and the inventory of homes for sale remain tight. Single family starts should total around 640,000 for 2013 and increase further to 700,000 starts in 2014. Existing home sales increased 0.6 percent in April to a pace of 4.97 million units for the year, and are almost 10 percent higher than a year ago. The pace of sales is the strongest since November 2009, which was elevated at the time by incentives from the home buyer tax credit program.
Now, there is a tipping point when it comes to interest rates. Obviously, lower rates are good for home sales, but a marginal uptick really doesn’t make that big a difference on buying power or qualifying power.
What we don’t want to see is rates gradually getting closer to the 7% or 8% they were 10 years ago.
“The Call” here by the Fed needs to be one of CAUTION. I know the Stock market is focused on who might take up the slack purchasing mortgages – well as they do that, will they hold the same tight CFPB standards the Fed did? Will they offer new and cheaper PMI to compete with FHA’S PMI? Maybe.
It will take some time to sort out. I know this to be a fact with over 25 years of Mortgage Experience:
- The Mortgage Industry is a BIG MACHINE, that does not do well when you try to stop it on a dime.
- Higher Mortgage Rates: Rates can go up 2% in 24 hours – I’ve seen it happen.
- Gas Prices are a GREAT indicator of what will happen to rates: the closer they get to $4 a gallon, the better the chance 45 days later they are headed lower.
So folks, I suggest you think about Mortgage Rates every time you fill up for gas. If Gas stays at 3.75 a gallon – we’re probably not done with rates going higher… if gas goes up, unemployment numbers show nobody has a job – maybe they come down.
No Matter WHAT your circumstances, call us to get a quote – we close loans for people all over North Carolina because we have some of today’s best mortgage rates! A phone call to us, might save you thousands of dollars in interest!
If you are a First Time Home Buyer – there’s more than just a Rate that you need to ask questions about!
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