Buckle Your Seatbelts, We are Heading towards Interest Rate Volatility

Luckily for Home Buyers (and Sellers), mortgage rates have hovered around 5% for the past year and a half. But now rates are starting to inch upwards. If you have have been waiting, waiting, waiting to buy a property, now is the time, before rates move up further. But, the future is unpredictable in the mortgage world.

According to Michael McDermott, Mortgage Planner at Prime Lending, eighteen months ago, the Fed's set aside $1.25 Trillion dollars to purchase mortgage backed securities over a period of time (MBS Program). The program was designed to artificially lower interest rates to assist in a housing recovery. As the Fed's poured an average of $17 Billion dollars a week into mortgage backed securities, rates did exactly what we knew they would...lower. This is largely the reason rates have been right around 5.000% on a 30 year fixed mortgage for the past year and a half.

At the last Fed Meeting on March 16^th, the Fed's said they still intended to end the MBS Program but they also said, "The Committee will employ its policy tools as necessary to promote economic recovery and price stability." While this statement gave the Fed's a little more time to consider extending the program in some capacity, it is now clear that the MBS Program will in fact end on March 31^st. On March 25th Fed Chairman, Ben Bernanke, simply stated that the Fed's will end the MBS Program as scheduled and will actually become a seller of mortgage backed securities but did not state exactly when. As we have seen, as mortgage backed securities are purchased, rates fall. However, the opposite is also true; as mortgage backed securities are sold, rates will rise.

Last week , rates moved about .250% higher. In the big picture, this isn't much but it is certainly a sign that the Fed's are taking the "training wheels" off of the market when it comes to long term interest rates. So what does all of this mean for us? It means the "trend" for lower rates is changing and even though we may not like it, this week marks the beginning of a "new normal" for longer term interest rates.

With so many factors influencing interest rates right now, we are certain to see more volatility in the coming weeks. If you are thinking about buying a home, take advantage of the low rates available today. They rates you've been eyeing may not be there tomorrow.