It’s time for a taperby Tim Manni
Looking over the weekly reports that influence mortgage rates, last week was rather light in terms of economic data that would push mortgage rates in either direction. Instead, much of the focus is on the Federal Reserve meeting this week and whether it decides to taper its purchases of mortgage-backed securities and Treasury bonds.
“For the most part, interest rates remained firm and mortgage rates continue to hold near two-month highs,” wrote Keith Gumbinger, vice president of HSH.com and author of the weekly Market Trends newsletter.
Mortgage rates see small increase
Last week, mortgage rates of all stripes increased, according to HSH.com’s weekly mortgage-rate survey:
- 30-year: The overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) increased by three basis points (0.03 percent) to 4.52 percent, the highest mark since the week ending September 27.
- 15-year: The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) also saw a rise of three basis points (0.03 percent) from the prior week’s value, increasing to 3.62 percent.
- FHA: FHA-backed 30-year fixed-rate mortgages moved upward by just a lone basis point to 4.18 percent for the week ending December 13.
- ARMs: The overall 5/1 Hybrid ARM added another four hundredths of a percentage point (0.04 percent) to rise to 3.11 percent.
3 reasons it’s time for a taper
This week, the Federal Reserve meets for two days and will announce any program changes at the conclusion of their two-day meeting on Wednesday.
“Will [the Fed] make a change to the QE program?” asks Gumbinger. “There is a real possibility that they will.
“Given that the program is comprised of $40 billion in MBS purchases and $45 billion in Treasuries, we think that a $5 billion trim in Treasury purchases is a likely outcome by this time Wednesday. By itself, such a small move shouldn’t disturb financial markets much, but would serve to send signal to the markets that the program will be adjusted if the economy warrants.”
Three important points suggest that now is the time for the Fed to test their taper:
- Since Treasury yields and mortgage rates have risen well off of 2013-lows, one could argue that the program has become less effective.
- The market now appears to be better prepared for change.
- This is the last meeting Mr. Bernanke will preside over. Mr. Bernanke may wish to be the one who pulls the trigger on the taper instead of leaving that as the first big decision his successor will be responsible for.
Will mortgage rates rise this week?
A more stable economy has lead to higher mortgage rates over the past couple weeks. Gumbinger concludes: “If the Fed makes no move (and it remains a good possibility that they won’t), we might see a small dip in rates; that said, the economic calendar is much busier this week, with some fresh clues about the housing market, industrial output, price pressures, worker productivity and the last update to third-quarter GDP. We expect that the trend of warmer data will continue, and as such, [mortgage] rates remain more likely to tick up a little than not, Fed or no.”