The bond market is closed today for Columbus Day, but ended last week leaving a sour taste in our mouth.  Mortgage rates averaged well the entire week, then went up approximately .25% on Friday alone. 

Could this mean mortgage rates are beginning to increase after enjoying months of historic lows?  Perhaps, however the general sentiment is rates will continue their small fluctuations in the short-term, followed by a precipitous increase approximately 1-2 years from now.  I know what you're thinking, "Nicole, why are you so smart?" Well, I largely attribute that to my early childhood Montessori education...what? That wasn't what you were thinking? You want me to define small fluctuations vs. a precipitous increase? Oh, got it.

Well, over the last 6-12 months we've experienced a very volatile mortgage rate environment.  Although rates have averaged at historic lows, its normal to see small .125-25% fluctuations any given week, only to return to lower levels.  On the other hand, I would define a precipitous increase in mortgage rates as a drastic and lasting increase.  What will cause this precipitous increase?  Inflation, or the scent of inflation coupled with the Fed's shift in monetary policy to combat it.  Last week Bernanke, even how inflation would be combated if this situation occurred.  Why is it estimated to take 1-2 years to begin?  Inflation has kept at bay during our recession; however, as the economy begins to turn around the vast amount of liquidity pumped into the system by our government will have to be sopped-up somehow to avoid inflation.  The 1-2 year time-frame stems from the fact that most believe its going to take 1-2 years for the U.S. to experience recovery (read NY Fed Chairman, William Dudley's, predictions last week).

So those are small fluctuations vs. precipitous climb for you.  Now, somewhere between those two is where mortgage rates will fall by March 2010.  By this date the Fed halts its purchases of mortgage-backed securities, the very thing that's brought us historically low interest rates.  How high will rates get when this happens?  Not sure yet, some are estimating anywhere from .25% to .50% higher, but the truth is we just don't know yet.  What we do know is rates will increase by March 2010.  When exactly rates increase largely depends on how the Fed weans off its purchases vs. cutting cold turkey.

Forecast for the Week

OK, now that I've taken you out about 6 months, let's rewind back to this week and see the economic news due that may affect rates.  Firstly, the Fed's Open Market Committee minutes come out Wednesday which could cause some volatility depending on what is said; and the Consumer Price Index (CPI) is due out Thursday giving us a read on consumer prices.  Either report will be interesting especially after Bernanke's comments last week on protecting the economy against inflation.

If you've seriously been thinking about buying a home its time to move quickly given where rates could be headed by March 2010 (and beyond).  I've saved my clients thousands of dollars by closely monitoring news and reports that affect interest rates, and I'd love to do the same for you!

If you're interested in buying a home, call me first to discuss your qualification.  I've love the opportunity to work with you!