Here's a current observation from Your RED-Headed, Mortgage Guy,
May was the third month in a row for stock market gains. Stocks have been appreciating as the credit freeze and bank liquidity crisis has eased, while a growing number of economic indicators have signaled a marked moderation in the pace of the economic decline. As one would imagine, this has not helped rates.
As the pressure for higher mortgage rates has increased in recent weeks, investors have speculated that the Fed would step in to "defend" certain interest rate levels, but that hasn't happened. This week, Fed officials explained that their mortgage-backed securities (MBS) purchases are designed to support the mortgage market and not to set rates. Disappointed that the Fed hasn't increased its quantity of asset purchases, investors sold MBS this week, and mortgage rates moved higher.
A number of factors have been developing which typically push interest rates higher. The coming supply of debt needed to pay for government programs will compete for investor funds. Despite strong demand for this week's large Treasury auctions, investors are concerned that higher rates will be required in the future. In addition, an improved economic outlook has made investors more willing to move funds to riskier assets and away from safer assets such as bonds. It also means that higher inflation may be a concern sooner than previously expected.
The difference between short-term and long-term rates reached record spreads during the week. With the Fed-controlled fed funds rate close to zero, short-term rates remained low. Long-term rates, which are market-controlled and influenced by investor expectations, rose significantly. A wide yield curve spread is often found during periods when the economy is strengthening.
Although higher rates may dampen the housing recovery, if one is indeed occurring, agents and originators should remember that rates are only part of the "home buying equation". Many houses are now more affordable, families are saving money now and may have more for a down payment, and rates are still relatively low.
Fence-sitters may be jeopardizing their chances at Historic low interest rates. As we enter June, it's REMINDER time that there are ONLY 6 months left for the $8,000 Tax Credit. It's hard to believe as we enter the Summer buying season that opportunities may be running away from us. HOWEVER, we still have GREAT low rates AND we still have the first-time homebuyers $8,000 Tax Credit available.
HAVE FUN & STAY TUNED!
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