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Employment News Positive: Mortgage Rates Continue to Rise

Holiday season! Time to think about Christmas gifts. How about a car? The year 2013  saw the two most expensive car sales ever at auction. A 1967 Ferrari sold for $27.5 million and a 1954 Mercedes-Benz W196R sold for $29.7 million. Collectors spent $1.2 billion on cars in U.S. auctions this past year.

Or perhaps you would prefer something more sprawling for your eight figures? This mansion, vineyard, 230 acre… thing… is a 6 bedroom, 9 bathroom affair in the hills of Arroyo Grande. Also involved: olive orchards and straw production. It will set you back $21.85 million, but I suppose everything is negotiable.

Sometimes it is fun to dream, but back to real life. One possibility: help a relative purchase a home. See here to learn about gift giving guidelines for home down payments, closing costs, and prepaid items.

Last week, we saw a couple of  strong pieces of U.S. employment news. Unemployment claims dipped to 298,000 for the last week of November, which is the second lowest level of the recovery and the seventh drop eight weeks. The employment situation, meanwhile, was better than expected for the second-straight month. The unemployment rate dropped to 7.0% in November as payrolls added 204,000 jobs. (For more on the employment news).

The Federal Reserve has maintained its stimulus program in full through 2013, citing still-sluggish economic data as a reason to keep buying $85 billion in bonds per month. The FOMC has said that it would look at economic indicators – specifically  job creation – to decide when to reduce its involvement in the economy. Thus, as the news has improved, speculate about a tapering start-date has picked up.

Mortgage rates have increased as markets prepare for this eventuality. QE fiscal policy specifically facilitated the mortgage rate drop to record-low levels. Though QE continues in full, the impending reduction of QE has investors preparing for a return to normalcy. Freddie Mac reported that the national average of the 30-year fixed rose to 4.46% last week, up from 4.29%. This is over 1.0% higher than earlier in 2013, but still quite low historically.

One rough way to track mortgage rate movement is to look at the 10-year Treasury bond yield. The 10-year movement correlates to movement of the 30-year fixed mortgage rate. As the yield rises, so do mortgage rates.

Daniel Podesto, Central Coast Lending co-owner and co-host of popular local radio program Mortgage Matters on KVEC 920, said the following about recent rate movement:

Leading up to the employment report on Friday last week, we saw the 10-year Treasury yield rise to around 2.85% in anticipation of a strong report.  The number of jobs added and the decline in the overall unemployment rate surpassed expectations. This morning, yields have remained at the elevated levels with speculation once again surrounding the timing of QE tapering, perhaps as early as this month. Some traders are calling for the 10-year to reach 3.00% before the Fed meeting.  I am still of the opinion that tapering will not occur until sometime in the 1st quarter of 2014.  Regardless, tapering is going to happen sometime soon, and I believe the days of 10-year yields at or below 2.50% are behind us.

This is a light week for economic data. Check in tomorrow on our website for a complete rate update.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile
805.543.LOAN info@centralcoastlending.com