After reaching record lows near the end of July, mortgage rates have moved steadily higher this month. From their peak around July 24, Mortgage Backed Securities have dropped by more than two points, and mortgage rates have increased one quarter point or more.
Prior to July 26, two primary factors were responsible for the decline to record lows. First, the European debt troubles caused investors to shift to relatively safer assets, including US MBS. Second, slower economic growth reduced inflationary pressures and supported low mortgage rates. While the troubles in Europe and sluggish growth rates are likely to remain for quite a while, what changed is that investor expectations on both fronts have improved this month, which has been negative for mortgage rates.
On July 26, the President of the European Central Bank (ECB) declared that the ECB will do "whatever it takes" to preserve the European Union (EU). Since then, investors have raised their expectations for additional aid from the ECB. The Germans, who will bear much of the cost of the aid, appear to be more willing to reach an agreement, as long as it includes long-term reforms. While it's still not certain that Greece will remain in the EU, investors feel that the larger countries such as Spain and Italy will receive enough aid to prevent their troubles from spreading. As a result, investors have partially reversed the flight to safety trade, lifting stocks and hurting MBS.
The stronger than expected July Employment report released on August 3, yesterday's Retail Sales report, and improving housing sector data have raised hopes that the US will lead the rest of the world back to at least average levels of economic growth. The outlook for economic growth remains uncomfortably low, but what impacts mortgage rates is the change in expectations. In typical fashion, as expectations have improved, rates have moved higher.
Summing it up: Good News is BAD news for interest rates. While things are not exactly great, they certainly are better than they were, and Long term rates have always been a great indicator of future growth. An increase in long term rates is a sign of improvement in the near future. Yes rates are up, but still flirting near all time lows.
Have a great week!
Mortgage Loan Originator
NMLS ID# 248937
Since 1987 I have been helping my clients fulfill their dream of home ownership!
Real Estate Mortgage Network Inc.
Real Estate Mortgage Network, Inc. is located at 16 Madison Avenue, Building 2 Suite 2D Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.REMN.com for more information.
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