Mortgage Rate Update May 23, 2013

Mortgage rates are significantly worse this morning.

In testimony to lawmakers on Capitol Hill yesterday, Fed Chairman Ben Bernanke stated that the Fed may begin to curtail quantitative easing (QE) in the “next few meetings”.  This was a shock to the financial markets and caused rates to rise immediately.  Mortgage rates are .125% higher than where they started the day yesterday and .25%-.50% higher than where we were 3 weeks ago.  What is next?

Essentially Chairman Bernanke laid the groundwork for pulling back on QE on the condition that the labor market continues to improve.

BERNANKE'S COMMENTS YESTERDAY HAMMERED THE FINANCIAL MARKETS AND PRESSURED RATES HIGHER.
BERNANKE’S COMMENTS YESTERDAY HAMMERED THE FINANCIAL MARKETS AND PRESSURED RATES HIGHER.

 Therefore, the monthly all-important jobs reports which will be released on June 7th, July 5th, and August 2nd will received heightened attention.  Should those reports report strong job growth we expect the Fed to slow down QE efforts as soon as September 17th-18th (we’d be surprised if it took place sooner).

From a technical perspective mortgage-backed securities and 10-year treasury yields are at the worst levels in the past year.  If these securities can’t close at improved levels by the end of the day then it would be a bad sign for mortgage rates.  We’d expect them to increase an additional .125%-.25% over the next few weeks.

This shouldn’t come as too big of a surprise.  Most all analysts predicted interest rates would rise during 2013.  Often time rates rise at a more acute pace than they fall so we can expect some volatility in the coming weeks and months.

Current Outlook: locking bias