The first part of 2014 has brought lower interest rates but will this continue? It’s not likely. We have had mixed economic data for the last few weeks and this has resulted in lower rates. The mixed data showed some weakness in the economy and a slowing economy usually means lower rates. However, the US economy continues to grow slowly. Unless this changes or something goes wrong overseas, interest rates are probably as low as they can go. The Fed has said they will continue to taper their purchases of mortgage backed securities. Continued tapering along with slowly improving economic data should push rates higher. Here’s a recent quote from the Fed Chairman, Janet Yellen, “My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years."
I don’t expect that rates will rise rapidly but it wouldn't surprise me to see rates .5% - .75% higher than they are now by the end of the year. The attached chart shows a graph of mortgage backed securities pricing since mid-November. When prices go down, rates go up. The chart shows how quickly rates went up in late November and December. In January, we saw them improve just as quickly. The chart also shows that prices stopped rising at the same level as they did in mid-November. So, we may have seen all of the rate improvement that we will see. Rates are still at historically low levels and this is making homes more affordable. It’s a great time to buy a home and lock in a rate that you will be very happy with in the future.
By: John Kurtz
Senior Loan Officer
Premiere Mortgage Group