Interest Rates Spike 15% in Less Than 4 Weeks
The upward run in interest rates over the past 4 weeks has been something to watch. Sitting near an all time low at 3.42%, for the average overnight rate on a conventional 30 year fixed mortgage on May 5th, the environment has changed. As of this morning that rate has jumped an amazing 15% to 3.94% and the highest level we have seen since April 8, 2012.
In a market where there is a shortage of inventory and buyers are scrambling for each well priced new listing prices are rising. But those borrowing will find that they now qualify for a smaller loan. If a buyer’s credit and ratios allowed them to qualify for a principal and interest payment of $1,000 per month they could afford a $225,000 mortgage back at the beginning of the month. This morning they wake up to find that they now only qualify for a mortgage of $211,000.
The reaction to our recent treasury bond sales has been tepid with investors in our debt demanding higher returns. Couple this with the Fed’s remarks that they are considering easing monthly purchases of out debt and you see the results. The Fed through their quantitative easing programs has purchased an amazing 3 trillion dollars of our paper and add another 85 billion each and every month. If the Fed isn’t buying this paper someone else has to and we are seeing the potential results unfold over the past few weeks in the movement of interest rates.
Rates have been held at artificially low levels by the Fed’s programs in an effort to encourage borrowing and to accelerate growth in the economy. Perhaps the 3 trillion dollar mark has the Fed and it’s members more than a bit worried. Perhaps they are just trying to see how the market will react if they in fact decide to ease their debt purchases. Borrowers have been spoiled for rates that have been, and still are, historically low and where we go from here will be of great interest to the real estate market and the recovery that has been the driving force in the economic recovery.
It’s always something……..