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OMG- Will Rates Continue to Rise? That's what we want to know!!

From our friends at First Home Mortgage & The Farrell Team
A basic rule of interest rates is the rise like a rocket and fall like a feather.  Expect the volatility seen recently to continue but at lower levels.  Remember, some volatility is good.  Economic data will become even more important.  Data that is better than expected will fuel the belief that the calendar dates Bernanke spoke of will come to fruition and traders may run for the door driving prices lower and rates higher.

Economic Data:  We know the Fed is watching the unemployment rate and has tied Fed actions to it. The Fed expects QE to be finished when the unemployment rate hits 7%.  At 6.5% the governing body will begin to increase the Fed Funds rate.  Most expect the Fed Funds rate to remain at or near the current level of –0- until at least late 2015. 

Fear and Greed:  Of the two emotions Fear is stronger and can cause panic trading like we are seeing now.  Who wants to hold a 10-year Treasury note paying 1.65% (a few weeks ago) when the exact same bond pays 2.48% (today)?  Once prices get running down they are hard to stop, it’s hard to put out a fire.  That said, once the smoke clears we couldsee rates recover somewhat.

Economic Outlook:  The Federal Reserve believes the US economy will recover faster than many global economists.  Their projections for GDP growth and unemployment are rosier than many professional trading houses.  For several years the Fed has projected much better growth than what was achieved forcing them to reduce future assumptions.   If the economy stumbles the Fed could and probably would increase asset purchases.

Watching the Fed:  Bernanke will taper off purchases not stop them immediately.  The Fed purchases roughly $2-3B in MBS’s a day.  That is a lot of buying support and is currently fixed at those levels as Bernanke assured the world on Wednesday.  The recent rise in rates will slow the issuances of MBS’s, making the Fed an even bigger player.  Think of it as insurance.
Yes, rates have risen from the levels where they were even a week ago.  However, they still remain near historic lows.  A buyer with a 30-year mortgage at 4.75% will be elated in the future when bank CD’s are paying 5% like they did a few years back.  Housing affordability is high.  A buyer can still purchase so much more house today than at almost any time in the recent past.

Remember, we are in the GREATEST industry in the world! Your expertise and skills helps families achieve the dream of homeownership and puts them on the path to economic security and prosperity.  Keep up the good work!

Have a great rest of your week!
Mike

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{Mike and his team are TOP in the country and Mike being a NJ native he understands our market here}


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