Summer 2015 Guide to Mortgage Rates

Summer 2015 Guide to Mortgage Rates

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Mortgage rates are determined by the supply and demand for mortgage bonds in the bond
market.

Why Mortgage Bonds?

When you get a mortgage in the US, your mortgage company is getting the money from
Fannie Mae, Freddie Mac or other "securitizers". These "securitizers" get their money by
issuing bonds to bond market investors.  These bonds are called "mortgage bonds"
or "mortgage backed securities".  Therefore, the mortgage rate you pay is really determined
by the supply and demand for mortgage bonds in the bond market.

The Role of the Federal Reserve

As you can see from the chart, the Fed
owned zero ($0) mortgage bonds prior to 2008.
Once the financial crisis happened, the Fed
decided to start buying mortgage bonds in order
to drive interest rates down and stimulate the
economy.  This is called "quantitative easing" or
"QE", and we've had several rounds of QE so far.

Currently, the Fed owns a whopping $1.75 
TRILLION in mortgage bonds!

The Fed has been the biggest buyer of mortgage bonds in recent years. This had the impact
of holding interest rates down to artificially low levels.  In fact, mortgage rates were in the
6.5% - 7% range back in 2006 - 2007 before the Fed started buying mortgage bonds.  That's
over 2% higher than where mortgage rates are today.

Over the past few months, the Federal Reserve came out with some statements saying that
they were going to slow down or stop their purchase of mortgage bonds as the economy
improves. Economists are estimating that this
will take place sometime in 2016.  That's why
we expect mortgage rates to go up a bit
toward the end of this year.

Here are Three Reasons Why It's More Likely for Mortgage Interest Rates to
Go Up vs. Go Down As the
Economy Improves

• The Fed is likely to slow down or stop its
  purchase of mortgage bonds as the economy
  improves. The Fed may even consider selling
  part of its large portfolio of bonds if the economy
  improves faster than expected.
• 
  
• Bond investors are more likely to purchase stocks vs. bonds as the economy improves.
• Bond investors may become more concerned about inflation as the economy improves.
  However, this is not likely to be a major concern because inflation is still very low and is
  likely to remain that way for a while.

Here are Three Things that May Impact Mortgage Rates in the Coming Months

• Jobs Report: bond investors and the Fed watch the jobs report and unemployment
  numbers very closely to determine if the economy is improving and whether they should
  buy, sell or hold mortgage bonds.
• Inflation Report: bond investors and the Fed watch the inflation reports
  (CPI and PCE) to determine whether they should buy, sell or hold mortgage bonds.
• Gross Domestic Product (GDP) Report: bond investors and the Fed follow
  the GDP numbers to determine if the economy is growing and whether they should buy,
  sell or hold mortgage bonds.  (GDP measures the size of the economy and whether it's
  growing, shrinking or stagnating.)

Conclusion: we anticipate continued volatility in mortgage rates over the next
several months as bond investors and the Fed decipher the economic reports
that we've outlined above. Please contact me for more info on which economic
reports may impact mortgage rates this week.

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Aundrea Beach-Greco
NMLS Number: 333739


info@aundreabeach.com
http://www.ilendlasvegas.com