Exactly eleven business days ago comments by Federal Reserve Chairman Ben Bernanke led to the biggest sell off in mortgage backed securities in a generation and within a few days interest rates for well qualified borrowers jumped up by nearly a full percentage point for 30-year fixed rate mortgages. The mortgage market gained some of that sell off back in the previous few trading sessions, but this employment report renews the negative trend with a vengeance. As of this moment the mortgage backed securities market (or MBS for short) is in another huge sell off. Speculation abounds and every pundit and arm chair economist has an opinion. Will this rapid rise in interest rates suck the oxygen out of the housing market recovery? Will the rapid rise in interest rates negatively impact the economy overall? Could the Fed hold the line and not taper to keep the economy and the housing market from reversing and slipping growth because rates are increasing to rapidly? Everything at this point is conjecture. I’ve been of the opinion, for what it’s worth, that the rapid sell off has been a dramatic over reaction. Yes, the economy is getting better. Yes, job growth is picking up. Yes, we all knew full well that the Fed would at some point taper its purchase of MBS and other bonds. So why does this come as a shock to anyone? It’s been studied/reported that the Fed’s MBS purchase program held mortgage interest rates down by about 1.50%, if this is accurate then the markets should be approaching price discovery as 30-year fixed rates get closer to 5.00%. By historical standards that would still be a remarkable interest rate and keeps home prices affordable. All of this is not say that that interest rates won’t go higher or that volatility won’t continue to abound, so I remain firm in my old adage, “Lock today. Sleep tonight.” If you’re comfortable with the payment and interest rate take it and don’t try to squeeze another eighth, because as we’ve seen writ large rates go up way faster than they come down.
Posted on: Fri, 05 Jul 2013 15:06:31 +0000
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