Mortgage Rates Set to Go Up

The gas pedal on the stock market has been almost to the floor in recent weeks as the indices have been hitting record highs almost daily.  The foot came off the accelerator on Wednesday when the Federal Open Market Committee Minutes were released.  In the minutes, it shows that more and more of the Fed board members are starting to consider when the government is going to step back from their bond buying program because the economy is improving at a faster pace than anticipated.

The bond buying program is the reason that interest rates, especially mortgage rates, are so low and have remained there for so long.  Everyone knows that when the Fed stops buying bonds, or at least reduces the amount of bonds they are purchasing from $85 billion a month, mortgage rates will jump.

Even though the Fed has not given a time table to when they will start to taper down their bond purchases, that has not stopped bond investors from being spooked and they are dumping their bonds on the market which causes bond yields to increase.  The bottom line is that mortgage rates in the last 2 weeks have jumped in the area of ½% because of concern about the Fed exiting their bond purchases.

The rate increases are starting to be felt in mortgage activity on the purchase side, but nowhere near as much as on refinances.  Mortgage applications for purchases were down 3% in the prior week where refinances dropped 12%.  It is likely that next week’s MBA report will show further declines in mortgage activity.  The one bright spot is that purchase loan activity is still 10% higher than a year ago.

Existing home sales caught fire last month with a jump of .6%. Single-family home sales, which is the most important component of the report, jumped 1.2% in the month.  Supply of homes, which has been very tight, increased dramatically in April.  It appears that home owners that have been sitting on the fence waiting for the market to improve are now jumping into the market to sell.  Inventory increased from 4.7 months to 5.2 months which is one of the largest inventory increases we have seen in a single month.  Existing home sales are up 9.7% from the same time last year.

Even in the new home sales section of the market, activity is rising.  There is a limited amount of inventory in this sector; however, as fast as the builders can construct homes, they are being sold.  New home sales rose 2.3% in April and there appears to be no sign of this letting up.  Pent up demand for housing still remains very strong.

Economic reports for next week are:

• Tuesday May 28^th – S&P Case-Shiller Home Price Index & Consumer Confidence
• Wednesday May 29^th - MBA Report
• Thursday May 30^th - First Time Jobless Claims ad GDP
• Friday May 31^st – Consumer Sentiment 

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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