Mortgage Rate Update June 20, 2013

Mortgage rates got hammered yesterday following the Fed’s monetary policy statement which was interpreted by the markets to mean an end of quantitative easing (QE) by the middle of next year.  Mortgage rates have increased by .25%-.50% across the board since the beginning of the week and are now at the highest level since March of last year.

What’s ironic is that Fed Chairman Ben Bernanke didn’t even explicitly lay out a timeline for tapering QE.  He simply stated that the Fed “could” begin winding down QE “later this year”.  The markets elected to overlook the word “could” and accepted his statement as a concrete plan.

From a technical perspective mortgage-backed bond (MBS) prices are at the worst levels since March of 2012 and are currently battling support at 98 (see chart above).  Should MBS prices drop below this level we could see rates increase another .25% before we see support again.  Ouch!

Whenever we see sharp swings in the financial markets its not uncommon to experience a little retracement and we are certainly hoping that we get some in the next day or two.  However, as I have been stating since the middle of May momentum is not on our side so the safe play is to lock in.

Current Outlook: floating near-term