Mortgage Rates Higher

It has been a wild few weeks for mortgage rates. The benchmark Conforming 30 year fixed rate is now back up to the late Spring / early Summer level of 4.75%. The recent rise in rates is mostly attributable to the following:

1. Strong economic growth data. Most of the data released over the last two weeks has exceeded the expert’s expectations causing several economists to raise their forecast for GDP in 2011. In particular, last week’s Retail Sales and Manufacturing Sector data surpassed the consensus estimates. The PPI inflation data was also stronger than expected. Faster economic growth generally produces higher future inflation expectations, which leads to higher bond yields and higher mortgage rates.

2. The new tax package. While an extension of the Bush era tax rates was widely anticipated, the final deal is significantly bigger than expected as it includes a one year payroll tax reduction and an extension of unemployment benefits for the long-term unemployed. Bigger is not always better when it comes to rates. In addition, it is anticipated that the new package will increase the budget deficit. An increase in the budget deficit means the government must issue more Treasury securities to pay for the spending. As the supply of Treasuries goes up, yields must rise to attract additional investors, so mortgage rates must rise as well. Finally, it is believed that the plan will boost economic growth, which would potentially lead to the threat of inflation. Of course, inflation is never good for mortgage rates. Also worth noting, this additional fiscal stimulus will make it less likely that the Fed will add more monetary stimulus. With the Fed focused on high unemployment and low inflation, it is doubtful that the Fed will make any more moves in the near future.

December 21, 2010 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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