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Mortgage Rates: Lowest Levels Since June

Mortgage Rates Experience A Nice Decline

Mortgage Rates Experience A Nice Decline

We haven’t talked about rates for a while now, so we figured it’s time for a brief recap. Mortgage rates for a 30-year fixed mortgage fell to 4.13% these days, the lowest mark since June 20th. We think it’s probably going to creep just barely lower in the short term (next couple of months), and then come back up again shortly thereafter.

Why?

We’ve written plenty about how the Federal Reserve unintentionally (we hope) caused a small market panic back in June. It jolted interest rates upward more in one week than they had ever risen before. We covered the Fed’s rapid retraction of it’s previous sentiment. Just last week we mentioned that one of the effects of QE3 is keeping treasury bond rates low, which keeps mortgage rates down.

Now that QE3 is here presumably until March 2014, the 10-year treasury bonds are sitting at just under 2.5%. That’s down from 3% back when the Fed’s QE3 withdrawal talk scared everyone, but up from a flimsy 1.6% in March. If you’re keeping track, mortgage rates tend to track the 10-year bond rate movements. Mortgage rates are just around 2% higher.

That means that if you can predict what will happen to 10-year treasury bonds, you have a pretty good idea of what will happen to mortgage rates — more or less. Citibank expects the 10-year treasury bond rate to hit 3.1% by mid-2014; that means you can expect 30-year fixed mortgage rates to hit somewhere around 5% in the same timeframe.

The Short-Term Move Lower

At the same time, experts claim that the 10-year Treasury bond hasn’t quite hit bottom yet. Some even have them dropping by as much as .2% in the next two months. That’s quite a bit, though nowhere nearly as dramatic as the spike we felt in June. The reason why you can expect a short-term shift downward is simply that the economy is not as robust as thought earlier. New jobs are being created at a slower pace. Many of those who have sought work for a long period of time are simply pulling out of the job search all together. The markets and businesses realize this and have held off on investing their substantial cash reserves. QE3 has helped stimulate the housing and auto industries. But meaningful stimulation across the board has yet to pan out. Therefore, treasury bonds will continue to be the beneficiary of QE3 and so will mortgage rates.

The Long-Term Move Up

Meanwhile, everyone is well aware that QE3 cannot last forever. The general expectation is that the Fed will begin backing off on it’s QE3 purchasing of mortgage-backed securities sometime in between March and June of 2014. As we get closer to March — or we hear more definitive data from the Fed — rates will creep (or jump!) upward again, just like they did this June, and for the same reason. Like a drug addict getting clean, the withdrawals from the monthly infusions of cash will be unpleasant to the market.

Conclusion

If you’re going to buy a home, do it in 2013 if you can. The closer we get to next Spring, the more likely you’re going to seeyour purchase power decline or payments increase. If nothing else, use our Lock and Shop program to get yourself in a good position before the rates start to rise in earnest.

Contact us to get pre-qualified and create a home buying plan.

Scott Storace

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