Mortgage Rate Update June 27, 2013

Mortgage rates have reversed lower off the highs we saw on Monday.

With the exception of yesterday’s revised US Gross Domestic Product (GDP) numbers most of the economic data released this week has been positive for the economy.  Durable goods orders, the Case-Shiller Home Price Index, Consumer Confidence, and initial jobless claims were all reported better than expected.  Normally this would cause mortgage rates to rise.

However, mortgage rates have actually recovered some of the recent increases over the past couple days for a couple reasons.  First off, Federal Reserve officials have been busy trying to moderate the the impact of Chairman Bernanke’s comments from the last monetary policy statement.  New York Federal Reserve President William Dudley stated earlier this morning that a rise in rates is “very likely to be a long way off.”

Second, as we approach the end of the 2nd quarter most mutual funds, index funds, and investment managers re-balance their investment portfolios.  In doing so they sell a portion of their over-performing assets and use the proceeds to buy under-performing assets.  Given that US Treasury securities and mortgage-backed bonds have had one the worst quarters in history these securities are now actually seeing some demand which is helping to moderate yields.

Will rates continue to improve?  I could see rates improving another .125%-.25% from current levels but the longer-term trend is no different.  Some analysts are now forecasting the yield on the US 1-year treasury yield to reach 3.00% by the end of the year.  If that were to happen 30-year fixed mortgage rates would likely rise to ~5.00%.

Current Outlook: near-term float with longer term locking bias