As the economy goes, so mortgage rates move. When uncertainty effects the market, investors are more likely to put their money in a “safe” location, and the U.S. Treasury bond market has been that “haven.” High demand for U.S. government bonds correlates to downward pressure on mortgage rates (see here to learn the specifics).
Of late, mortgage rates have jumped a bit higher. The Dow Jones Industrial Average and the S&P 500 – prominent stock market indexes – have continued to reach record high levels on a day-to-day basis. Employment news has been much more positive, with unemployment claims reaching a recovery-low figure, and the unemployment rate dipping to 7.5%. The housing market, construction, and spending economic indicators like retail sales, have all had strong showings over the past several months.
During the months of March and April, mortgage rates steadily dropped to within inches of all-time record lows. During the streak, the 30-year fixed just missed hitting its best ever mark (set in late 2012), according to Freddie Mac’s weekly survey.
Even as the stock market has improved, mortgage rates have dropped. In this case, the Federal Reserve’s bond buying quantitative easing program has guaranteed a source of demand for U.S. Treasuries.
During the month of May, mortgage rates have moved up off their floor. The good economic news was too much to overcome.
“Low initial jobless claims and improving employment data have caused the latest push,” said Central Coast Lending owner Jason Grote.
We saw a similar pattern to begin 2013. The fiscal cliff alarm brought nervous investors into the bond market, and mortgage rates dropped. When the fiscal cliff passed without much damage, mortgage rates rose. We are seeing the same cycle today.
“Rates feel volatile,” Grote explains. “Good numbers cause optimism, but if the economy is not ready for the increase, they fall back down.”
“I expect this to continue for the foreseeable future.”
To keep the market in perspective, mortgage rates are historically low, and the Federal Reserve’s bond-buying and bond-swapping programs will keep them that way. Fed Chairman Ben Bernanke has tentatively tied the program to a improving unemployment, but we still have a ways to go (the 6.5% mark has been put out there).
Employment news is good, but as Wall Street Journal reporter Ben Casselman remarked on Twitter, “At 180k jobs per month, we won’t return to population-adjusted pre recession employment until 2022.
In other words, we have a long way to go, and as we move forward mortgage rates will remain low – for now.
“I realize that this week, rates aren’t as low as they have been, but keep in mind that the 3-4% range of the 30-year fixed will be a thing of the past in 24 month,” said Grote. “We will miss them, and the people that took advantage will be the winners.”
Give us a call at 805.543.LOAN to learn more about how to take advantage of record low mortgage rates. To see the May 13 CCL 10-program mortgage rate tracker, click HERE and scroll past the text.