Mortgage Rates Rise For The 7th Straight Day

Mortgage markets worsened for the 7th straight day Tuesday, equaling the longest losing streak of the last 5 years.

Conventional, 30-year fixed mortgage rates are now scratching 5 percent, with FHA mortgage rates running roughly the same.

This is a huge increase from just 11 weeks ago when mortgage rates were riding an 8-month-long hot streak, and appeared headed into the 3s. Then the Federal Reserve intervened.

On November 3, as additional support for markets, the Fed announced its second round of bond buys, a $600 billion program dubbed QEII -- short for Quantitative Easing, Round II. Wall Street got spooked on the news; investors feared runaway inflation.

That's when low rates ended. Here's why:

(A) Inflation makes the U.S. dollar lose its value,

And, (B) U.S. mortgage bond payments are paid in U.S. dollars.

Therefore, (C) Inflation makes mortgage bond repayments lose their value.

When mortgage bond repayments are worth less, bond demand falls among the global investor set and that causes bond prices to fall along with it. When bond prices fall, mortgage rates rise and that's exactly what we're seeing right now.

Since the Fed's QEII announcement, mortgage rates have soared and home affordability is taking a hit.

Given recent trends, it's probably safe to declare the Refi Boom "officially over" and the era of low mortgage rates may be over, too.  Home prices may move up or down in Atlanta this year, but rising mortgage rates could render the point moot. If you're looking for a great "deal" with low, long-term payments, the time to get in contract may be now.

Because of rising rates, homeowners have lost roughly 10% of their purchasing power since November.

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A Simple Explanation Of The Federal Reserve Statement (November 3, 2010 Edition)

Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that, since September's meeting, the pace of economic and job growth "continues to be slow".  Housing starts are "depressed", income growth is "modest" and commercial real estate investment is "weak".

With respect to its prior economic stimuli, the Fed deemed the recovery "disappointingly slow", while, at the same time, noting that growth will come.

The Fed also noted that inflation is running lower that what's optimal, hinting at the potential for deflation.

Lastly, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent "for an extended period", and also announced a new, $600 billion support package for the bond market. In most instances, a move like this would drive mortgage rates lower, but the Fed's stimulus had been widely telegraphed, and $600 billion isn't too far from the initial package estimates.

Mortgage market reaction has been muted thus far. Mortgage rates in Atlanta are unchanged post-FOMC, but looked poised to worsen.

The FOMC's next scheduled meeting is December 14, 2010. It's the last scheduled meeting of the year.

Mortgage Rate Lock Alert : Expect Rate Changes Wednesday Afternoon

The Federal Reserve ends a scheduled, 2-day meeting today. It's the seventh of 8 scheduled Fed meetings in 2010, and the eighth overall this year.

The Fed held an unscheduled meeting May 9, 2010.

When today's meeting adjourns, Fed Chairman Ben Bernanke & Co. will publish a formal statement within which the Fed is expected to announce "no change" to the Fed Funds Rate. But that doesn't mean that mortgage rates won't change.

To the contrary, expect mortgage rates to move by a lot this afternoon. Here's why.

The Fed's mission is to preserve stability within banking and the economy and, to achieve that goal, the Fed was bequeathed a number of powers by the U.S. government.

The most well-known of those powers is to right to set the Fed Funds Rate, the rate at which banks lend money to each other overnight. 

Since December 2008, the benchmark Fed Funds Rate has been held in a range of 0.000-0.250 percent, the lowest possible range without going negative.

Now, when the Fed Funds Rate is low, it's meant to loosen credit; to push the economy forward. And, by all accounts, the near-zero Fed Funds Rate is working. The recession ended and the economy is recovering.

However, the Fed has other stimulus-providing tools at its disposal and Wall Street expects the group to use them.  This is where mortgage rates come into play. 

Investors think the Fed will announce a new stimulus in its press release this afternoon and, dependent on the size of package, mortgage rates in Georgia will either rise, or fall.

• If the package is worth more than $500 billion, rates are expected to fall
• If the package is worth less than $250 billion, rates are expected to rise

If the stimulus is somewhere in between, rates should idle.

Predicting mortgage rates is an inexact science, and guessing the Fed even moreso. Therefore, if you're shopping for a mortgage rate right now, the prudent move is to lock it up prior to today's 2:15 PM ET adjournment because, after to 2:15 PM ET, we can count on the Fed Funds Rate staying flat, but the same can't be said for mortgage rates. 

Call your loan officer this morning.

What's Ahead For Mortgage Rates This Week : November 1, 2010

Mortgage markets remained highly volatile for the second straight week last week. Yet, over the course of 5 days, mortgage bonds ended the week relatively unchanged.

Conforming rates in Georgia worsened Monday, Tuesday and Wednesday -- rising as much as 3/8 percent as compared to the week prior -- before settling lower through Thursday and Friday.

On the week overall, 30-year fixed rates worsened, 15-year fixed held steady, and 5-year ARMs improved.

And despite all the data released last week, it wasn't the fundamentals that were causing rates to move. Instead, Wall Street was firmly focused on the Federal Reserve's scheduled 2-day meeting this week; preoccupied with the likelihood of new Fed stimulus program.

The Fed's meeting adjourns Wednesday and the group is widely expected to announce a new round of bond market support at that time.  Uncertainty over how big that package will be, however, is what's causing rates to jump.

Market estimates range from $250 billion to over $1 trillion and when Wall Street expectations shifts toward the lower end of that range, mortgage rates have been rising. When expectations shifts toward the upper range, mortgage rates have been falling.

This is why it's all eyes on the Fed this week. Once the Fed adjourns, there's no more "expectation" -- there's only Fed commitment.

Other than the Federal Reserve's get-together, there isn't much new data due for release. The week's calendar looks like this:

• Monday : Personal Income and Spending reports
• Wednesday : FOMC adjourns from its 2-day meeting
• Thursday : Initial and continuing jobless claim data
• Friday : Pending Home Sales, Jobs Report, Unemployment Rate

It's unlikely that data will swing mortgage rates until after the Fed's Wednesday adjournment, but, once that happens, expect bond market attention to shift to the October jobs report set for 8:30 AM ET release Friday morning.  If jobs data is strong, mortgage rates should rise.

All things considered, it's dangerous to float a mortgage rate this week. If you're not already locked, talk to your loan officer prior to Wednesday afternoon.