Why are mortgage rates up?

Mortgage and Lending with HomeBridge Financial Services (NJ) NMLS 248937



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!


Robert Rauf

Mortgage Loan Originator

NMLS ID# 248937

http://robertrauf.remn.com/Default.aspx or my blog: http://activerain.com/blogs/rrauf

(732)557-6920 x102


Since 1987 I have been helping my clients fulfill their dream of home ownership!

Real Estate Mortgage Network Inc.




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 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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Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Funny things and things that make no sense usually kick in around the elections times...thank you

Aug 17, 2012 01:00 AM #1
Dan Hopper
Keller Williams Realty Downtown LLC - Denver, CO
Denver Realtor Advocate/Short Sale

Great points that you have addressed here, Robert.  At first look, you wonder WHY the rates have increased, with other economic factors in place outside of what you discussed.  We are seeing a slight decrease in activity over the last couple weeks, too.  Lots of refis in the wind... but a slight decrease in purchases, as well.

Aug 17, 2012 01:00 AM #2
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

Dan, we have had decent purchase activity this summer, still running a bigger percentage of purchase V refi which is great.  anyone buying today is hitting the perfect storm of record low rates and low prices!

Aug 17, 2012 01:18 AM #3
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

Richie, not sure if the election has anything to do with it.. reality is that the FED trys to avoid doing anything that could be seen as pro right or left in an election year.  Grand scheme of things, we all new rates couldnt stay that low forever.

Aug 17, 2012 01:19 AM #4
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Very interesting read. Kind of a catch 22. I'm getting that it's good that rates are going up because it means the economy is getting healthier. So, what's the short term and long term prognosis? I know, I know, if you knew that you'd be a rich man, but you must have some guesses. I'm suspecting they'll continue to rise very slowly, but hopefully not to actually high, unhealthy levels in the next few months?


Aug 17, 2012 09:12 AM #5
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

Gretchen, it certainly is a catch 22! We want good news, but we also want low rates, but we cant have both.

I think we will stay near the 4's for a while, the market always has a tendency to over do it on the up and down side.  even if we jump a full 1% we will have rates we will be in the 4's, and considering the 20yr average is close to 8% for a 30yr fixed, that is still a great deal!

Aug 18, 2012 01:22 AM #6
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