Why Mortgage Rates are going up in November…..
by Tom on September 21, 2009
in Market Musings, Mortgage Rate Updates
This is the first article that I’ve been able to find that has actually put a “rate amount” to the effect of the Fed’s purchase of mortgage backed securities. Let me explain why I think it’s a reasonable assessment of it:
- CR has a reputation of being very accurate. That’s why Calculated Risk is one of the top financial “geek” blogs on the web.
- Back when the Fed announced that they were going to start buying mortgage backed securities and Treasuries, mortgage rates plunged by over .375% (my recollection) in barely a day’s time.
So, it seems quite logical that now, at the end of October, when the Fed says, “All Done,” we’re going to see that reverse itself and see rates jump by .35%.
That would put us at 5.25% on a purchase and around 5.5% on a refi. With all of the pricing adjustments that I was talking about last week in Why the Obama Refi Plan isn’t working any more, that’s going to kill the refi market.
My estimate is that we’ll see rates creep up starting probably in the middle of October because the markets tend to move in anticipation of moves by the Fed.
Tom Vanderwell
Calculated Risk: The Impact on Mortgage Rates of the Fed buying MBS
Decomposing the Fed’s purchases of Treasury securities by maturity shows a heavy focus in the four-to-seven-year and seven-to-10-year sectors, together making up half of all purchases so far.
But the last four Treasury purchases have been focused elsewhere, with the biggest purchases in the shorter end of the yield curve.
I think the impact on mortgage rates from the Treasury purchases is minor. This suggests to me that mortgage rates will rise by about 35 bps, relative to the Ten Year yield, when the Fed stops buying MBS.
Well…I guess that didn’t quite happen, huh? I just locked in at 4.91 with my lender in Boston (Intercontinental Capital Group). I’m holding off on closing in case they go any lower which they just may. I suspect though after Thanksgiving everything’s going to start to go up, maybe even before then.
ICG did my second mortgage on my condo in New York last month. I was afraid to wait too long, because I don’t think the Fed can keep rates down much longer. I got a great rate though, and waiting any longer with my old rate was just costing me too much. I think Thanksgiving is a good time frame to make a final decision.
George,
I wrote this before the Fed extended their purchase of MBS until March. That makes a difference.
Tom
Hey no one can predict anymore, right? I decided to close, anyway, though and I think I did ok. I closed at a little over 5%? What do you think?
You guys know if Intercontinental Capital Group does FHA loans? I think I can get approved for one and my buddy just bought a house with only 3 or 4% down. My wife and I have been renting for five years trying to save up a down payment — but 3 or 4 we could swing. How good does your credit have to be for FHA?
Jim,
I just sent you an e-mail privately with some more thoughts. Keep in touch.
Tom
Tom, Intercontinental Capital does do FHA loans. I referred a girlfriend of mine to them back in April who only put up about 3% for a brand new house in Montclair, New Jersey. I don’t know much about FHA loans but I think the basic idea is that as long as your credit and payments in the past two years have been good, that’s really what they care about. Best of luck!
Thanks, Lara. I am really trying to get an FHA loan for a home in Massachusetts. I just don’t have enough to put down for a regular loan, so hopefully I’ll qualify. Best of luck to everyone!
Hey do you think if the health bill passes (or doesn’t) it will have any effect on rates? My wife and I qualified for a decent rate with ICG in Connecticut, but we’re deciding whether or not to wait until after the holidays to lock in…
Randy, rates have started going up and don’t seem to be heading back down. If I were you I would lock in a rate with Intercontinental Capital, wait a few weeks and see if they go down. But people are saying rates could go up to 8% over the course of the year.
My wife and I are thinking about refinancing to save money on our payments. Does anyone know how much our rate has to go down for it to pay off?