"A short comment by Janet Yellen, Chair of the Federal Reserve, caught investors off guard on Wednesday, and the reaction was not good for mortgage rates. In addition, a reduction in tensions in Ukraine caused investors to return to riskier assets, hurting safer assets such as mortgage-backed securities (MBS). As a result, mortgage rates ended the week higher.
Rates (with 1 discount point or less)
- 30 Year Conven. ......4.5%
- 15 Year Conven. ....3.5%
- 5 Year ARM .....3.125%
- FHA – 30 yr ......4.25%
- VA – 30 yr ........4.25%
- USDA – 30 yr .....4.25%
- Jumbo 30 yr .....4.5%
- Jumbo 5 yr ARM .......3.25%
As widely expected, the Fed scaled back its bond purchases by $10 billion to $55 billion per month. According to Yellen, if the Fed's economic outlook does not change significantly, the bond purchases are expected to end in the fall of this year. Fed officials have long maintained that they expect that the fed funds rate, the Fed's primary tool for monetary stimulus, will remain near zero for a "considerable period" of time following the end of the Fed's bond purchases. The big surprise came during Yellen's first press conference as Fed Chair, when she defined the meaning of a "considerable period" as about six months. This would place the first fed funds rate hike in the spring of next year. Before Yellen's comments, the market consensus was for the first rate hike to take place near the end of next year. While mortgage rates are not directly tied to the fed funds rate, the economic strength implied by the expected timing of the first fed funds rate hike was unfavorable for bonds of all maturities.
Most economists expect 30 yr rates to reach 5.0-5.25% as we reach the end of the Fed’s bond purchases later this year. The added threat to increase that the Fed Funds rate makes 5.25%-5.75% a possibility."
John Schutze is one of the Senior Loan Officers at Supreme Lending in Austin. You can contact John through one of his many online sites, including www.JohnSchutze.com.