Rates still on the rise

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A few posts ago, I mentioned interest rates were on the rise but they may not break out of their current trading range in the low 4’s. Well, they have now and moved into the mid 4’s. The question everyone asks is (of course) why?!?

There are a lot of different factors in play:

  • Stocks have rallied in a major way over the past couple of weeks. With better news of the job front and better than expected retail sales, Wall Street is jumping for joy and taking advantage of the good news. As typically occurs, while stock values increase, bonds values decrease and interest rates suffer.
  • Wall Street is also appreciative of another round of bailouts in Europe to stabilize the Euro zone. While this problem (liquidity issues in Greece, Italy, Spain, Portugal & Ireland) isn’t going away any time soon, Round 2 of the bailouts encouraged investors to turn more to stocks (higher gains but riskier investments) than bonds (lower gains but safer).
  • Bond prices have been ridiculously high this year, which caused our historically low rates. As investors bought bonds at lower prices, they are now looking to sell those bonds at higher prices for year end “profit taking.” A larger than normal sell off hurts bond values, which also hurts interest rates.

Where do we go from here? That is a great question, and the answer is the same as always… no one knows for sure. As I’ve said a few times in The Mortgage Blog, until the job market recovers (unemployment rates moving closer to 5% than its present levels of 10%) and the economy gets back on its feet, interest rates will more than likely remain low.

Combine that with the Federal Reserve’s plan to continue buying bonds (typically increasing their value and helping interest rates improve), and you will notice the mixed signals. Some signals indicate rates could improve while others point to rates getting worse.

How does one respond?

  • If you are looking to purchase a home, get out there and shop while rates are still in the 4’s! While you are looking, be sure to work with a mortgage professional who can offer a float down option on a locked interest rate. With the float down option, you can lock in knowing you can float down to a lower rate should interest rates improve during the loan process.
  • If you are looking to refinance your current home, find a target rate (one that makes sense for you to refinance) and be ready to move when it becomes available.

How do you get started with the mortgage process to buy a home OR find out your target interest rate? Consult with your mortgage professional. They will know what to do. If the property is in the state of Georgia for your purchase or refinance, I might just know someone who can help you get started!

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