Posts Tagged ‘QE3’

Mortgage rates rise again

October 16, 2018

Mortgage rates are on the rise (from the dead?!? ūüéÉūüéÉūüéÉHappy Halloween! ūüéÉūüéÉūüéÉ) again in the month of October. Mortgage rates jumped sharply to yearly highs and to levels not see in over seven years. Mortgage rates for a 30 year fixed loan are nearing 5%. What is going on!?!

Mortgage rates rising can be scary!

A year ago, mortgage rates were just under 4%… that is about a full point lower than they are today. I know what a lot of people think… “it is because of the Federal Reserve raising rates.” Not exactly.

The Federal Reserve raised rates three times so far this year at 0.250% each time. That means the Federal Funds Rate is up 0.750% on the year, but mortgage rates are up almost 1%. Why the difference?

  • the Federal Funds rate directly impacts the rate on second mortgages, car loans, credit card rates, etc.
  • bond values – specifically mortgage backed security bonds (or MBS bonds)- impact rates for first mortgages. As these bond values decrease, mortgage rates increase.

That is what we’ve seen this year. Stocks are up on the year, the economy is better, and MBS bond values are down… meaning, higher mortgage rates. Remember the reason we saw all time historic lows for mortgage rates was two-fold.

First, the economy went through the Great Recession. In this environment, investors move money out of stocks and into bonds. The more money into bonds mean those values go up, and mortgage rates go down. As the economy improved, more money is going into stocks and out of bonds (bond values drop and mortgage rates rise).

Second, the Federal Reserve purchased bonds (quantitative easing or QE) to help push rates down to stimulate the housing market. The economy is now doing well, the Federal Reserve ended QE, and the Feds are now selling off some of the bonds they bought during QE. All of the factors pushing rates to historic lows are gone, and the current environment on rates is pushing them up. This trend doesn’t look like it will change anytime soon.

What can we expect? Earlier this year, mortgage rates jumped 0.75%, but recovered about half of those losses. We can expect to see some market fluctuations, and possibly some positive improvements in mortgage rates. Those looking for rates to get below 4% again? Those days are long behind us now, and probably not returning anytime soon.

Worried about rates going up even more? Considering buying a home but waiting for the right time? If you are buying in Georgia, contact me today. Let’s talk about what buying a home would look like for you, and see how the current dynamics in play will impact your next home purchase.

Republican tax plan and mortgage rates

December 12, 2017

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use ¬†a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!

QE3 is officially over

November 3, 2014


As promised, the Federal Reserve ended their Quantitative Easing (also called QE) program last week. This wasn’t unexpected. Toward the end of 2013, the Feds announced they would begin tapering off their purchasing of bonds, which included mortgage backed security bonds (or MBS bonds). The Feds had several objectives in buying bonds, and one of them was to help push interest rates lower. They achieved that goal by purchasing MBS bonds. As the value and demand of MBS bonds increases, interest rates decrease.

The purpose of tapering was to prevent a financial market that was accustomed to the Feds purchasing bonds from freaking out by its sudden withdrawal. A practical example – the Feds were acting as though they were introducing a fish to a new aquarium. You keep the fish in the bag of water it was placed in at the pet store, and let¬†the fish¬†float in the bag of water in the new aquarium to get adjusted to the water temperature of its new home. If you don’t do this prior to releasing the fish, the shock could kill it.


With the Feds officially out of the bond buying business, one of the instruments that helped interest rates reach historic lows is gone. Will interest rates rise? Most analysts thought rates would in 2014, but rates are a little lower now than they were in January 2014. That said, rates aren’t far off their historic lows from a couple years ago – meaning, rates have much more room to get worse than to get better.

One important point to clarify in the Feds statement. The Fed’s plan is to continue to keep short term lending rates near zero for the foreseeable future. Short term lending rates and interest rates are not the same thing. The short term lending refers to the Federal Funding Rate. Interest rates are determined by the value of MBS bonds, which change daily just like the stock prices of Apple, Google, UPS, etc. The Feds are no longer trying to influence MBS bonds now that QE3 is over.

What does this mean for those looking to buy a home? The simple answer is, we don’t know. Interest rates could stay the same or begin to get worse. Instead of knowing the Feds are in the background helping to keep MBS bond prices high, their values are now dependent solely on market factors.

If you are looking to buy a home or refinance, look to get started soon. Everyone has expected interest rates to rise the past few years, and they haven’t yet. Still, as I said earlier in this post, interest rates have a lot more room to get worse than to get better. If you are looking to buy in Georgia, contact me to get started.


Interest rates still ignoring impact of tapering

May 13, 2014


Here we are roughly 6 months into the Federal Reserve’s Tapering program, and interest rates have yet to skyrocket as most analysts (and this blog) expected. Not only are interest rates not higher, but rates are lower today than they were at the start of the year. The Federal Reserve has been a major purchaser of mortgage backed security bonds (MBS bonds) for years, yet their slow drawback out of the market is having virtually no real impact thus far. Why?

A previous post on this blog detailed some of the reasons behind this. World events that can destabilize economies, poor economic numbers, and poor economic outlooks all impact MBS bonds in a positive way. MBS bond prices go up, rates go down.

Another impact is the amount of MBS bonds available for purchase. The first quarter of 2014 saw the fewest number of loan originations in roughly two decades. Fewer closings means fewer MBS bonds available to buy. Even with the Federal Reserve reducing the amount of MBS bonds they are buying, the Feds are actually purchasing a larger percentage of the market than they were during the height of their Quantitative Easing program. With less money made available, the Federal Reserve is still the largest buyer in the MBS bond market.

Instead of rising, interest rates have improved with a combination of world events, poorer economic outlooks in developing economies, and the Federal Reserve’s continued use of Quantitative Easing. At some point, the Quantitative Easing will come to an end. The Federal Reserve will be out of the market, and rates will rise. In fact, it might be good to see some rise in rates as it could signify economic growth. Until it happens, let the good times roll with the lower rates!


How World Events Impact Mortgage Rates

March 18, 2014


What do protests in the Ukraine/Thailand/Venezuela, the Crimea dispute, and poor economic news from China have in common? In some way, shape, form or fashion, they impact mortgage rates.

“How” this happens is the better question.

A general rule of thumb with interest rates is this… When there is negative/bad news (poor economic outlook, rumor of war, unrest), mortgage rates tend to improve while stocks lose value. When there is¬†positive/good news (good economic outlooks, increased hiring, resolution to unrest), mortgage rates tend to get¬†worse while stocks gain value.

Notice I used the words like¬†“general” and “tend” in the previous paragraph. With¬†the events over the past several weeks, volatility and inconsistency reign supreme. Let’s look at some examples:

– On March 13, 2014 –¬†China released economic news that continues to show a slow down in their economy. Meanwhile back at the Crimea Peninsula, Russian troops were conducting war games/exercises.

The result? The Dow lost well over 200 points, while mortgage bonds had one of their larger single day increases of 2014. These negative events/news stories helped interest rates improve.

– On March 17, 2014 – It is announced that Crimea has voted to join Russia. This lead to the Ukraine and Western countries threatening sanctions, Russia stating its support for the move, and a tenuous situation becomes increasingly complex and strained.

The results? The Dow endured further losses? Nope. Quite the opposite. The Dow had gains of almost 200 points with today’s futures showing even more gains. Typically, news like this would hurt stocks and help rates, but interest rates worsened on Monday.

The markets seem to be currently reacting to events in unexpected ways. This makes forecasting the direction of mortgage rates more difficult than normal.

How should you respond if you are in the market for a new loan? I have two ways:

1. Lock and Shop: go ahead and lock an interest rate for an extended time without having a home under contract. Once you find a home and are within 30 days of closing, you can then use a float down if interest rates are better than your original lock.
2. Rate Float Down: whether or not you use the Lock and Shop program, should interest rates improve by 0.250% or more from your original rate lock, you can float down to the current rate for free. There is no fee to use this feature. The float down can be used once you are within 30 days of closing and prior to 7 days before closing.

Using either of these programs gives you the best of both worlds… should interest rates get worse, your rate is locked! Should interest rates improve by 0.250% or more, you can still float down to the lower interest rate. This protects you regardless of what happens with the latest US jobs report, or economic outlooks in emerging markets, or the latest events in Crimea… your rate is protected.

To learn more about the free Float Down or the Lock and Shop program, contact me today. I can help you protect your rate now even if you haven’t found the home of your dreams.


Tapering impacting interest rates

January 29, 2014


Yesterday, The Mortgage Blog focused on the Federal Reserve’s QE3 Tapering strategy. Today, let’s discuss how Tapering could impact the interest rate market.

Most analysts felt interest rates would rise as the Federal Reserve exited the bond buying business. A funny thing has happened so far in 2014… the market has slightly improved over the course of the month. This can be partly attributed to the Federal Reserve’s decision to not exit the bond market in one fell swoop. It is also because of current economic news in the world.

With the release of some stuttering US economic news, along with¬†other key global economies showing signs of slowing down(China), these factors are¬†leading to a global selloff of stocks in all of the world’s markets. All of the sudden, US Bonds are being viewed as a safe haven. Foreign investors are buying bonds at a faster rate than the Federal¬†Reserve is exiting the market.

The Federal Reserve’s exit plan, so far, was well thought out and enacted at the right time. Interest rates have not increased, and bond markets are stable. What does this mean for those looking for a new mortgage?

The prevailing theory is interest rates would climb into the upper 4’s. Instead, rates have stayed in the low to mid 4’s. Use this opportunity to still take advantage of historically low interest rates. Whether buying a new home or refinancing an existing one, now is the time to get started. If the property is in the state of Georgia, I can help get the process underway.


QE3 Tapering Continues

January 28, 2014


The first Federal Reserve meeting of 2014 is the last time Ben Bernanke will be the chairman of the reserve. Should we expect any surprises from the  meeting?

Probably not. As unstable as the market has been over the last several months, the last thing anyone wants is a surprise as Bernanke exits stage left. One thing that is on everyone’s mind is the tapering of QE3.


Please sir, I want some more QE3?

As discussed on this blog, the Federal Reserve is bringing its current Quantitative Easing plan (called QE3) to an end, but there is still more of it to go around before it is gone for good.

The Federal Reserve wants to end QE3, but end it without causing a panic in the markets (unlike May/June 2013). The Tapering plan goes something like this:

  • ¬†the Feds will slowly reduce the amount of bonds they purchase each month. January 2014 marked the first month of tapering.
  • the Feds will reduce the amount of bonds¬†it buys¬†every Fed meeting until they have completely exited the market.

Expect the tapering plan to continue with another $10 billion reduction in bond buying by the Federal Reserve.

What will be a¬†consequence of the reduced bond buying? More on that tomorrow…


QE3 Tapering begins in 2014

December 19, 2013


The Federal Reserve¬†announced Wednesday afternoon that the “tapering” process will begin in January 2014. Apparently there will not be a QE4-ever after all!


The Federal Reserve has purchased bonds for several years now, and as much as $85 billion worth of US Bonds each month since September 2012. The process was called Quantitative Easing or QE as it is commonly known. QE was a two step process the Feds used to help stimulate the economy.

  • Step 1 – by 2008, the Federal Reserve dropped the Federal Funding Rate to near zero. This was to encourage short term borrowing to stimulate the economy. The lowering of the Federal Funding Rate is a common tool used by the Federal Reserve during a recession.
  • Step 2 – due to the severity of the financial crisis, the Federal Reserve began purchasing US Treasury and Mortgage Backed Security Bonds to lower long term lending to help stimulate the housing market along with the auto industry. This strategy was the QE, which turned into QE2, and QE3. The QE’s were partly responsible for the historically low interest rates the country has grown accustomed to seeing. Without QE, interest rates would have never got as low as they did over the past few years.

Instead of having a hard end to the QE program, the Federal Reserve will taper-out of QE. In January, the bond purchasing will reduce from $85 billion per month to $75 billion. The amount purchased each month moving forward will be reviewed at each Federal Reserve meeting and QE will eventually come to an end in a year or two.

By slowing reducing the amount of bonds being purchased, the Federal Reserve hopes the interest rate market has a slow and steady climb on interest rates instead of a volatile and rapidly rising rate market. In theory, historically low interest rates should still be available in the coming year, but rates won’t be as low as they were in 2012 and early 2013.

If you are looking to refinance or purchase a home, how should you respond to this?

I’ve spoken with several clients this year who decided to wait for interest rates to get lower. With the rapid rise in rates starting in early May, some people felt interest rates would eventually fall. With the announcement of tapering, we won’t see interest rates get as low as they have been in the past few years.

The goal now should be to look to get into your new home OR start that refinance process today while rates are still low. To get started, contact me. If the property is in the state of Georgia, I can help you through the loan process.



October 1, 2013


Quantitative Easing (or QE) is the government’s unconventional plan to help stabilize the financial markets and the economy. This program began in late 2008 and is ongoing today. It helped push interest rates to historic lows, stabilize the financial markets, and also helped to fuel the stock market. So what exactly is QE?

Basically, it is the government¬†buying. As the government purchased bonds, it helped stabilize and increase the value of those bonds. By doing so, it caused interest rates drop (to help housing market) and allowed the financial markets to “take a breath” instead of panicking about the current state of events.

The first round was announced in late November 2008. On the announcement, interest rates dropped¬†half of a point. Interest rates continued to improve from there.¬†Prior to the recession, the government held roughly¬†$700 million of Treasury notes. Through QE1, QE2, and QE3, their balance sheet got as high as $2.1 Trillion (with a “T”). The goal was to buy bonds to stabilize everything, then slowly sell them off to get back to pre-recession levels. It hasn’t worked out that way.

QE1 gave way to QE2… then we had QE3. Then the goal was to stop QE3 by the end of 2013 or early 2014. The plan to begin taper off bond buying was announced in mid June. Note the use of the word “taper” and not “stop immediately.” How did the market react?

Remember the sudden interest rate spike in June? Well, when this “taper” plan was announced, bond prices dropped drastically. When bond prices drop, interest rates go up. Stocks dropped almost 700 points during the same time period… that is how the market reacted. By the Federal Reserve meeting in mid September, the tapering of bond buying was put on hold with no new end date announced. Stocks and bonds both improved (which is why rates got better in September).

What now? In theory, bond buying can’t go on forever. The market will eventually have to stand on its own. As you can infer from this post, the market can react emotionally at times. If you are thinking of buying a home OR wanting to refinance and think you missed out, a new window has been opened as interest rates improved with the continuation of QE3 (or should it be 4 now?!?).

How long will this window last? With the way bond buying has gone since 2008 (almost 5 years now), maybe forever… or maybe as short as the next Federal Reserve meeting in late October. Those meetings impact the markets. We have less than 30 days until the next meeting. Don’t miss this opportunity and avoid market uncertainty by starting the loan process now. I can help you start the loan process today if the home is located in GA.