Mortgage Rates Edge Up

“Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. We were deluged with mostly better than expected data and strong stocks as the DOW eclipsed the 12,000 mark. Weekly jobless claims printed at 415K, weaker than the expected 425K. Revised Q4 productivity came in at 2.6%. Analysts were expecting productivity to rise 2.2%. Productivity is important for a business because it helps keep costs low. Factory orders rose 0.2%, stronger than the expected 0.6% decline. That data pressured rates higher. Mortgage bonds ended the week negative by a disappointing 7/8 of a discount point.”

The above is a quote from a weekly mortgage update that I receive from Alice Roe of US Bank. All that good news basically means that mortgage rates are going up. If the business outlook looks good rates go up, if they look bad, rates go down. Thats the way it works except for when the Fed gets too involved. The Fed can, to a certain extent, keep interest rates low by making money cheap for banks. But this is can only work for so long, eventually they will have used up all that leverage and it won’t work anymore. I think they have very little leverage left.

I get a daily update from Bryan Scoresby of Wells Fargo. These updates show that rates currently are in the high 4% ranges and edging up. For every 1% increase in rates you will pay about $120 more on a $200,000 loan. So in a year you will pay about $1400 extra for a house if you wait until interest rates rise. So there is pressure on buyers to buy before interest rates rise.

Conversely, if interest rates rise, it will decrease the amount of qualified buyers for a given house price. That will tend to drive house values lower over time because of the lack of demand. House values will not change quickly as a response to interest rates, but like a huge ship turns, the rudder will eventually have an effect. So there is pressure on sellers also, to get their house sold while the interest rates are still attractive.

Bottom line, both buyers and sellers need to pay attention to interest rates. Buyers that are current looking at houses might want to lock in the rates as soon as they can. They are the ones that can react quickly to the still relatively attractive rates.