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Rates jump 0.375% or so since May 2nd

Written by Clay S. on . Posted in Rate Updates

Mortgage rates have jumped 0.375% or so since May 2nd … what is the cause?  What do to? Oddly enough … optimism in the economy and bad communication. Positive economic news and positive measures from the Bank of Japan and European Central Bank have caused a selloff in treasuries and mortgage-backed securities.  That has piled on to a four-week slide in the bond markets, resulting in mortgage rates jumping 0.375% to 0.500%.  Experts had predicted steady rates through the summer.  Today the 10 year treasury bill is up to 2.11% yield and mortgage-backed securities are down over 100 basis points. The release of the March Case–Shiller 20 city home price index report at 10.9% against investor expectations of 10.1%.  This indicates a surge in home prices at the fastest rate since 2006. Consumer confidence has also spiked coming in at 76.2 in May the highest since February 2005, a big boost over April and above the 72.5 expected for May.  All this has contributed to a surge in the Dow of nearly 200 points The Bank of Japan and the European Central Bank have both indicated they would continue to add more in terms of Quantitative Easing if necessary, which removes some concerns that have been a damper on the markets for some time. Last week Fed Chairman – Ben Bernanke – caused a wild ride on the markets when he gave a mixed message about the Fed participation in their own quantitative easing by purchasing mortgage-backed securities.  In his prepared remarks he indicated the Fed would not stop the purchasing of mortgage-backed securities and yet in a question-and-answer period indicated they might cut back on the program in the next few meetings.  There are certainly others within the Fed who would like to see the program curtailed sooner rather than later.  That has contributed to the chaos in the bond market. The red bars in the bond chart below are bad news for rates, and you can see the slide the market has been on since May 2nd. What to do?  I do believe we have to get used to slightly higher rates.  As far as when to lock a pending transaction – if you have 2 or 3 weeks, let things settle and lock on any improvement.

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