OK – the world has kept spinning even after the Federal Reserve said they would start “tapering” beginning in January. In fact, while rates might (I said might) move slightly higher from here, I’m all for it. Why, you ask – don’t higher rates hurt your business? Well, maybe in the short run they do. But putting a longer term perspective on things (and I have that long-term view since I’ve been in the business for 27 years), I would view the fed’s pullback as healthy since it signals an economy that is on the mend with employment improving throughout the economy. While we can always use a bit faster growth I’ll take anything in the way of an improving economy for now given the issues we have weathered since the initial downturn/correction that began in 2008.
As to my earlier point, I’m not totally convinced that rates will move materially higher from here. There are a couple of factors at work that I think will mitigate any significant rise. First off, measures of inflation (at least as measured by the Feds) remain subdued. With wholesale inflation measured year-over-year at around 1.20% (recent PPI statistics), mortgage bond investors appear to be being adequately rewarded today at a “real” rate of return (after inflation) that is above historical norms. Finally, what’s lost with the Fed announcement of their tapering is that, given the significantly lower mortgage supply, they don’t have anything to buy anyway! Therefore, the perceived reduction in “demand” is totally mitigated by the reduced “supply” and should provide a ceiling for rates. Consequently, my muddy crystal ball says rates can pause here as the traders and banks adjust to a Fed that is trying to take away the punch bowl ever so slowly.
If you are starting to think about buying that first home or eyeing a move up then remember that rates are still awfully low by historical standards. Finally, if I can help you in any way than I hope you will give Austin’s “home grown” mortgage banker an opportunity to help
Michael Scott/Residential Mortgage Loan Originator/NMLS#216603