Posts Tagged ‘tapering’

Interest rates still ignoring impact of tapering

May 13, 2014

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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!

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It’s no joke!

April 1, 2014

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This year continues to bring surprises our way. The good news is these surprises are for real, and not a cleverly planned April Fools joke.

 

Sadly this video is a joke.

Home Values Continue to Rise

With home sales declining from January 2014 to February 14 (their lowest level in close to two years), one might think “here we go again” with the housing slump coming back. That’s not the case this time! Instead of a recession or foreclosures causing home sales to decline, it was the harsh winter across the country that kept people from going to look at homes and/or putting homes on the market.

The good news is that home values are continuing to climb with a rise of roughly 9% across the country compared to prices a year ago. Metro Atlanta saw a year-over-year increase of 15%. Also, the number of short sales and foreclosures continue to decrease.

While the number of home sales dropped early this year, the trend is actually positive for the housing market. With the harsh winter behind us, expect home sales to rise in the coming months.

Interest Rates Hold Steady

Most of the experts (and this blog) felt interest rates would rise in 2014 as the Federal Reserve began and continued their tapering plan. Not only have rates held steady, they have slightly improved thus far in 2014. Why?

As recently posted to this blog, world events impact interest rates. When the Feds announced the tapering plan, China and other emerging market countries were not releasing reports with negative economic outlook projections. On top of that, Russia was getting ready for the Winter Olympics and everyone was playing nice in the Ukraine.

Fast forward a few months… the uncertainty in Eastern Europe coupled with a slow down in economic output from emerging markets has made the US Dollar a “safe haven” investment again. Foreign investors are looking to buy more bonds than the Federal Reserve have made available from their tapering plan. The demand has caused bond values to rise so far in 2014, which has made interest rates improve a little so far this year.

Just because today is April 1st, it doesn’t mean this news isn’t true. We have seen home values continue to rise even though homes sales have dropped a little in 2014. It is definitely a seller’s market right now. We’ve also witnessed interest rates slightly improve despite the warnings of the tapering impact on rates.

It’s no joke – housing prices are rising and rates are holding steady. If you are looking to buy a new home this year, get started today! If you are buying in Georgia, contact me. I can prequalify you and get your housing adventure into full spring (get it!).

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How World Events Impact Mortgage Rates

March 18, 2014

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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.

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Tapering impacting interest rates

January 29, 2014

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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.

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