Big Week Ahead for Mortgage Rates

The rest of this week may prove to be volatile for mortgage rates.   I know you are busy so let’s bottom line this before jumping into the details:

– if you are floating your interest rate AND your lender has a float down lock option (Learn more about our strategic float down lock) make sure
you are locked in ahead of the jobs report on Friday

Today through Friday we will see/hear data/info that could swing rates either way.   Here is what is on tap:

    1. TODAY:  2 day Fed Meeting ends and Bernanke speaks regarding the meeting – meeting has ended since I began this email – comments released moments ago and tone/content of the meeting favored stable mortgage rates
      1. Mortgage rate watchers (me, you, buyers etc..) are looking for the Fed’s tone and comments regarding “tapering” the Fed’s mortgage bond buying program/QE
    2. FRIDAY MORNING: Employment report for July is released
      1. Job growth could result in a move to higher mortgage rates & a lack of job growth could result in a move to lower mortgage rates

Why is the Fed’s QE program so important?

Check out this graph I put together (and that is included in our “What’s up With Mortgage Rates” Guide).  It shows the impact QE has had on mortgage rates.  In 11/2008 mortgage rates were at 6.09% (30 year fixed).   QE pushed rates all the way down to near 3.25% (30 year fixed) in 2013.

Mortgage Rates and The Impact of QE

Mortgage Rates and The Impact of QE

Fed shifting Emphasis for Tapering QE

Also worth noting is that the Fed will likely release a statement after today’s meeting that tries to shift emphasis to data.  What I mean is that they are likely going to strengthen the notion that the Fed pulling out of QE (program that has kept mortgage rates so low – see chart) will be measured/gauged by specific economic data NOT specific dates.  The data they are tracking is unemployment and inflation.  Once we hit specific numbers (mainly unemployment at 6.5%) the Fed will take that as a queue to start unwinding their QE program.  This may result in higher mortgage rates.

Why is the Feds shift to data anchoring so important?   Fed Chair Ben Bernanke previously released statements in May and June (see chart above to see how much rates enjoyed his 05/13 and 06/13 speeches) where he stated a specific dates regarding when the Fed would ease out of QE.   With the Fed shifting from dates dictating the end of QE to economic data dictating end of QE you can bet on one thing:

–   Economic data such as the monthly jobs report will carry a much higher level of significance with regard to their influence on mortgage bond pricing and mortgage rates

Hang on – we could be in for a wild mortgage rate ride  Weds/Thurs/Fri.

By Jeremy House

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