What I Believe Will Happen to Mortgage Interest Rates in the Next 6 Months

Dear Clients and Colleagues,

I wanted to point out what I see happening to mortgage interest rates over the next 3-6 months due to some eminent changes in Fed policy, as leaked out today. First off the DOW hit a record high today, suggesting there is a willingness for institutional and retail investors to move money into stocks and out of and out of safer long term instruments such as treasuries and bonds paying only 2% over 7 years. When money is moved out of bonds and into stocks, the bond yield goes up and so will mortgage interest rates. Second, the Fed is also looking at winding down their purchasing of $85 billion per month  of mortgage backed securities after mid-year. The impact of this phenomenon will only raise mortgage interest rates over time.

My conclusion and advice: If you are considering refinancing or purchasing a home while mortgage rates are at their lowest level, I suggest to get the process started now. Call or reply if you would like me to review your situation and at least inform you of your options.

Regards,

Tom Drasler

Excerpts from Today’s Wall Street Journal: WSJ, April 10, 2013. “The Dow Jones Industrial Average advanced 85 points, or 0.6%, to 14758 in midmorning trade. On Tuesday, the Dow rose 60 points, or 0.4%, to close at an all-time high of 14673.46. On Tuesday, the S&P 500 posted a second-straight gain, snapping its record 13-session streak of alternating between daily advances and losses.

The Federal Open Market Committee's March meeting minutes were released at 9 a.m. EDT, rather than the scheduled 2 p.m. because they were inadvertently sent a day early to Congress and some trade groups, the Fed said. The minutes showed that committee members are continuing to debate the timeline for ending the central bank's stimulus efforts.

"These minutes didn't change the general story," said David Kelly, chief global strategist with J.P. Morgan JPM +1.52% Funds. The release "just reinforces the idea that investors need to gradually move their money toward riskier assets. "Demand fell for the safe-haven 10-year U.S. Treasury bond, pushing its yield up to 1.786%.”

“Federal Reserve officials are debating whether to begin winding down an $85-billion-a-month bond-buying program after midyear, minutes from the latest policy meeting shows. The minutes were released early Wednesday because they were inadvertently sent a day early to Congress and some trade groups, the Fed said. The minutes showed that "all but a few" Fed officials agreed at the central bank’s last policy meeting that they wanted to keep the program going "at least through midyear." But after that, officials had a wide range of views about how they might proceed.”