As many of you may have noticed, interest rates have started to go up after the many months of historically low interest rates. The question I am most often asked is, “How much have they gone up and why?”
In the background driving these historically low rates, is a Fed buying program that purchases $85 Billion of mortgage backed securities each month. It’s part of the Fed’s mandate to help manage both employment and price stability. So, the lower rates have helped drive forward the housing market and to manage unemployment. This security purchasing, called Quantitative Easing, is something that many of the Fed’s Board Members believe the volume of securities purchased needs to be reduced. As a result, they have decreased the amount of securities they buy from $85 to $65 Billion, unofficially.
The market started to respond to this news around May 1st which is why you have seen so much activity in the bond market, which ultimately has moved rates upward.
I anticipate in the next thirty days the rates will drop again. For those of you considering a refinance, purchase or investment property this is still a great time to make a move. I know, however, that this rate range is more than what you’re used to seeing over the last few months. It’s important to keep in mind that rates in the 4% range were unheard of until 2010, and rates in the 5% range were unknown prior to 2003. Think about the rates many of our parents paid in the seventies and eighties where they rarely dropped below 10% and skyrocketed to 18% during the eighties. My point is this: if you know that you are in a stable financial position to purchase a home, and/or it makes sense to refinance, the rates are still low compared to historic norms.
One thing I’ve learned about my clients, is that you all can have some really great insights. I’d love to get your thoughts too on the market changes; shoot me a note or post in the comments and let me know what you think. Will mortgage interest rates drop again?