Keeping you updated on the market! For the week of November 18, 2013 MARKET RECAP Mortgage Rates Pop, But Will They Stay Popped? Interest rates spiked higher this past week after a surprisingly strong employment report. Higher lending rates swept across most mortgage products. Focusing on the 30-year fixed-rate loan, Bankrate reports a 13-basis-point increase, which lifted its national average to 4.48%. Freddie Mac reports an even more dramatic increase, with the 30-year loan rising 19-basis points to 4.35%. Credit markets were thrown into a flutter because the economy added 204,000 new jobs in October, which obliterated most estimates. Indeed, the consensus estimate among most economists was for 120,000 new jobs. The strong employment report reignited taper speculation. Should job growth accelerate, the probability rises that the Federal Reserve will cut back its monthly purchases of mortgage-backed securities and U.S. Treasury notes and bonds. The Feds diminished demand for these assets will lead to higher interest rates. To be sure, more job growth would be terrific for the economy. It would also be terrific for the housing and mortgage markets. Even if lending rates rise, more people working means more people able to service mortgage debt. In addition, it will also lead to a less risk-averse lending market. More borrowers and buyers promote market diversity, which emboldens lenders to move further out on the risk curve. Lest we get ahead of ourselves, one-month does not make a trend. We suspect that Octobers employment numbers will likely be revised downward. After all, this is the first employment report produced since the government slowdown. Its possible the numbers are skewed by a missed month of data collection. Quite frankly, were not sold on a sustained employment recovery. Janet Yellen, the lead candidate to chair the Federal Reserve starting January 2014, appears to hold a similar view. This week, Yellen signaled she will carry on with monetary stimulus until she sees improvement. In a prepared statement to the Senate, Yellen, said unemployment is “ still too high, reflecting a labor market and economy performing far short of their potential. ” This means the Federal Reserve will remain motivated to maintained the status quo. For the past couple months, weve said that the national average on the 30-year loan will range likely between 4.25% and 4.5%. Were still holding that range. In fact, we wouldnt be surprised to see the national rate pull back toward the lower end of the range after the employment-report euphoria subsides. With that said, this is still a good time to get in the mortgage market. And it might be the best time for the foreseeable future. The qualified mortgage, or ability-to-repay, rule kicks into gear in January 2014. The rule requires even more costly documentation of mortgage loans, which could lead to constricted mortgage availability, particularly for first-time home buyers. From our perspective, theres no need to incur additional headaches tomorrow for something youre willing to do today.
Posted on: Tue, 19 Nov 2013 19:46:23 +0000
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