The Town Broker

Mortgage Rates On The Rise

As expected, mortgage rates are on the rise this week. (Hey, I never like to say ” I told you so“, but…umm…) The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in the past few days. As mortgages get more expensive, more would-be homeowners are priced out of the market. As a result, many homebuyers are now scrambling.

Mortgage Rates Are NOT Set By The Fed

It’s important to understand that contrary to popular belief, mortgage interest rates are not set by the Federal Reserve. When the big kahunas meet in Washington they typically tinker with things like the Federal Funds Rate…the rate that banks charge each other to borrow money overnight. Mortgage rates however, are set by the price of mortgage-backed securities. And recently, the Federal Government…biggest buyer for these products… stopped buying.

That left rates nowhere to go but up.

Mortgage Rates Are Like A Roller Coaster

Dan Green (one of my all time favorite mortgage guys and author of The Daily Mortgage Report has taken the actual rates of the Fannie Mae 5% bond and plotted it as a roller coaster ride. The true-to-life mapping represents the rate changes during the period from 5/08 – 3/10 when the Fed was buying mortgage backed securities, and keeping mortgage rates artificially low.  Come along for the ride, but I’ll warn you…bring your Dramamine!

The Take Away… If you’re in the housing market as a buyer OR a seller, mortgage rates have a huge impact on how things will turn out. If you want to know how today’s rates will impact your ability to buy or sell in this market, give me a call.

Tags: Federal Reserve, interest rates, mortgage

This entry was posted on Thursday, April 8th, 2010 at 9:29 am and is filed under Real Estate Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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