This week’s mortgage rate jump can be attributed to Wall Street and its changing expectations of the future of Fed stimulus. It’s also the reason why mortgage rates have climbed through most of May; the Federal Reserve’s last meeting concluded May 1, 2013.
In the Fed’s post-meeting press release, it said that the group’s third round of quantitative easing (QE3) would continue into the foreseeable future, but that the Fed may increase or decrease its pace of purchases as warranted by economic growth.
To Wall Street, this means that signals of U.S. economic growth are cues to sell mortgage-backed securities (MBS). It’s a way to get ahead of the Fed’s “tapering” of purchases, which is expected to lead bond prices down.
When bonds prices fall, mortgage rates rise.
Meanwhile, Wednesday, mortgage rates were smacked with a double-whammy.
First, in the morning, in testimony to Congress, Federal Reserve Chairman Ben Bernanke said that the U.S. economy may stall if economic stimulus is lifted prematurely. Many took that to mean that the Fed would leave its QE3 program untouched — at least for a number of quarters.
In a follow-up clarification, though, Bernanke added that the Fed has not ruled out a cut to QE3 before summer’s end.
The remarks sent mortgage markets reeling. Wall Street shifted bets, pushing mortgage rates up.
If you were shopping for a loan, you would have recognized this change in the form of higher discount points. A morning quote of 3.59% with 0.7 discount points would have jumped to 3.59% with 1.2 discount points by noon.
The deterioration continued into the afternoon.
At 2:00 PM ET, the Federal Reserve released the minutes from its April 30 – May 1, 2013 Federal Open Market Committee (FOMC) meeting.
The minutes revealed that several Fed members expressed a willingness to reduce the group’s $85 billion monthly bond purchases as soon as June 2013 — well ahead of Wall Street’s expectation for a cutback, and even more quickly than hinted by Chairman Bernanke earlier in the day.
The release of the Fed Minutes sent mortgage rates higher for the second time of the day and, by market closing, required discount points had climbed another half-percentage point.
The same 3.59% rate now requires 1.7 discount points — an additional $4,170 due at settlement for loans made at the national conforming loan limit of $417,00
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