Mortgage Rates Start To Increase
Mortgage interest rates have begun to come off the all time lows from early January and seem to have settled in the low 5% range on 30 year fixed mortgages with no points. One of the reasons that rates have begun to increase is all of the planned stimulus packages and spending that newly elected President Obama has on the table. The way these packages will be financed is through increased government borrowing in the form of increased supply of treasury notes. This expectation of increased supply in the bond market has lead to higher yields in all bond markets and caused mortgage backed securities (MBS) to follow with higher yields as well. Along with increased supply pulling the price of bonds down and thus increasing the yield; there is fear among investors that inflation will eventually pick up if the stimulus packages spark an economic recovery.
The Fed is going forward with their program of purchasing MBS on the open market. They have consistently been buying 3 to 4 billion of agency MBS each day. If it were not for this constant demand provided by the Fed, mortgage rates would be much higher than they are today.
On the bright side, as lenders get caught up on loans in their pipeline over the next month they should get more aggressive in the rates they offer on their daily rate sheets in an effort to keep the new loans coming in. This tightening of the spread between lenders rate sheets and MBS pricing could lead to lower rates again sometime in the next month.
While 30 year rates in the high 4% range were nice while they lasted, rates in the low 5% range are nothing to complain about either, especially with the home purchase season fast approaching.