Current Interest Rates – Week of 5/29/12
Food for thought…Interest rates were a staggering 1% higher at this time last year. Sure, sounds like a big swing, but what does this mean to someone in the market for a home loan? The current low interest rates allow someone looking in the $225k price range to afford an extra $25,000 in loan amount compared to a year ago. The same loan amount with a point higher rate would be over $133 more per month. While interest rates may not go up immediately, the chart below illustrates how quickly interest rates can move.
What happened with interest rates last week?
After reaching all time lows with interest rates on multiple occasions in weeks prior, interest rates were not able to push lower. Instead, we saw mortgage backed securities sell off and have started to make a pretty good case that rates are about as good as they’re going to get for the near term.
The eco-drama continues over in Europe with Spain trying to get a grip on their financials. It’s your choice on who to thank, but Spain, Greece and the rest of the European Union have, without question, helped move our interest rates to where they are and have kept them from going higher. Fear based selling drives money into longer term bonds, helping interest rates.
Markets closed early last Friday and were closed no Monday in observance of Memorial Day.
What’s coming up this week on the economic calendar and what’s the impact on interest rates?
Coming up during this holiday shortened week is the ADP Employment Report on Thursday 5/31 at 7:15 CT and Chicago PMI at 8:45 CT, both of which could cause interest rates to move.
Rounding out the week is one of the more action/news filled days we typically see on the calendar. This will be kicked off on Friday morning, starting at 7:30 CT prior to the market open. The first item worth highlighting is the release of Core PCE, a popular measure of inflation. The Fed likes to see this number within a target range of 2%. Should this figure come in higher than expected, interest rates could suffer due to fear of inflation, the arch nemesis of bonds/rates.
Perhaps the largest report of all is the Jobs Report, estimating non-farm payrolls to be at 155,000. A number reported higher than expected means a potential for rates to suffer as the warm and fuzzies of a growing economy fill the air and investors move their money out of bonds and into stocks.
Here’s our strategy for the days and weeks ahead…
Home mortgage interest rates have gone up over the last few weeks since reaching all time lows. Will interest rates get that low again? It wouldn’t be a surprise if they did, but based on the data and tools that we have on hand, interest rates are more likely to go up over the next year than they are to go lower. Take a look at the chart above and imagine the market moving the other direction, causing rates to increase over 1%. It’s not a matter of if they’ll go up, but when, so talk with your mortgage planner to put a plan in place to take advantage of these rates while they’re still around.
Current Interest Rates – Week of 5/21/12
What happened with interest rates last week?
Interest rates and mortgage backed securities met all time lows last week on 3 separate occasions. These historic levels have only been reached one other time, back on February 2, 2012, and have been fueled by the fears of a Greek euro exit, deteriorating health of the Spanish banking system, and the stock market’s steep sell-off. As the lows were reached with interest rates, the markets seem to have once again found this as a ceiling of resistance, meaning some sort of catalyst will likely be needed to break through the ceiling and avoid getting pushed back lower.
In the FOMC minutes released last week, several members noted “that additional monetary policy accommodation could be necessary if the economic recovery lost momentum”, however, “one participant noted the potential risks and costs associated with additional balance sheet actions.” The markets will be on standby to see how this unfolds in coming meetings.
What’s coming up this week on the economic calendar and what’s the impact on interest rates?
There is little news slated to come out this week that would have a major impact on rates. Investors will be taking cues from the headlines out of Europe and results from Treasury auctions. Facebook will act as a barometer for the other social media stocks as the Dow, Nasdaq and S&P look to rebound.
New homes sales figures are due on Wednesday at 9 am CT. Initial jobless claims and durable goods will be released on Thursday at 7:30 am. The week will close with Consumer sentiment at 8:55 am on Friday going into the holiday weekend.
Here’s our strategy for the days and weeks ahead…
It’s a great time to be buying or refinancing with interest rates at historic lows. Looking back at our previous attempt to break through these levels, we saw rates climb one half percent in 45 days, with some stretches moving .25% over a one or two day span. While we don’t see the catalyst for this to happen on the calendar, any positive news coming out of Europe or our equity markets will give investors a reason to make a quick buck by selling their bonds and buying stocks, causing interest rates to suffer. If you’re in a short time frame (less than 30 days), be ready to lock at a moment’s notice and make sure that your loan officer or mortgage planner has a strategy in place to lock in your rate as news unfolds.
The stock and bond markets will be closed on Monday for Memorial day. Next week’s market update will be released on Tuesday, May 29th.
Current Interest Rates – Week of 5/14/12
What happened with interest rates last week?
There wasn’t a whole lot of movement with interest rates last week as mortgage backed securities continue to trade at all time highs, yielding some of the lowest interest rates ever. Political tensions in Europe continue to raise questions of stability in global markets, causing investors to seek the safe haven of US government securities and Mortgage Bonds and drive our yield (rates) lower. Investors are taking profits anywhere/anytime they can get them, following cues from global and economic reports. Aside from the continued European woes, JP Morgan reported a $2 billion loss that is weighing on stocks and brings on more fear-based bond buying, for now.
What’s coming up this week on the economic calendar and what’s the impact on interest rates?
This week’s economic news kicks off with the release of the Consumer Price Index (CPI) on Tue. May 15th at 7:30 CT. CPI is a measure of inflation based on a fixed basket of goods. In other words, what’s the “bang for your buck”. If this comes in higher than the expected (.2%), look for interest rates to suffer.
Next on the schedule is release of the FOMC minutes on Wed. at 1pm CT. The key points that investors will be looking for are the verbiage surrounding “inflation” and whether there is a likelihood for further “help” to the markets through Quantitative Easing 3 (QE3). The last FOMC commentary indicated that there would not be a QE3 anytime soon, but will be watching closely for changes in this policy. While further easing may not be the ultimate long term solution, it would cause interest rates to push closer towards a 30 yr. fixed at somewhere around 3.5%.
What’s the Fed have to say about inflation? Probably not much, but the markets will be listening for any clues that inflation is on the rise. The Fed has already pledged to keep interest rates at low levels through mid-2013 but their way of doing that is printing money to buy more bonds (like QE1, QE2, and Operation Twist). More money gets printed and into the economy, the more risk you have for inflation. The higher inflation, the higher that interest rates will be. See where we’re headed here?
Here’s our strategy for the days and weeks ahead…
Interest rates are at historic lows giving homeowners and home buyers an opportunity to afford more home than they ever could in the past. While rates could continue to get lower and set new historic lows, markets can move extremely fast in this volatile world economy. Our team will be monitoring the mortgage backed securities closely as the economic news unfolds so that we can advise clients and referral partners on their best opportunity to lock in the lowest rate. If you’re on the fence, kindly start working your way down. Rates can not hold at these levels for a long period of time.