Fed Minutes Expose “Tightly-Wound” Mortgage Rate Environment
Today is a bad day to be a mortgage rate shopper. Mortgage rates rose sharply Tuesday afternoon after the Federal Reserve released the minutes from its March meeting.
Mortgage rates of all types -- FHA, conventional, jumbo, VA and USDA -- are rising. In some cases, sharply.
Fed Minutes Move Mortgage Rates
The Federal Open Market Committee meets eight times annually to discuss U.S. monetary policy and, when appropriate, to add, remove, and/or revise policy already in place.
3 weeks after the FOMC meets, the Federal Reserve publishes what's known as the Fed Minutes. The Fed Minutes are similar to the minutes from a condo board meeting, or a corporate conference call -- it summarizes the conversations that shaped the meeting, and is loaded with detail.
Investors pay close attention to the Fed Minutes because the Federal Reserve swings a big stick with respect to Wall Street.
Since 2008, Fed policies have helped drive stock markets up and bond pricing down, creating the low mortgage rate environment to which we've all grown accustomed. As a result, when investors believe the Fed is close to withdrawing said policies, mortgage rate rise.
That's what happened Tuesday. Mortgage rates rose in all 50 states.
Fed : No Rush For QE3 , New Stimulus
The March Fed Minutes show a Federal Reserve committed to improving the U.S. economy, but clearly within a "Wait-and-See" mode. After 2 rounds of quantitative easing, Fed members are watching employment data improve, housing numbers rebound, and an increase in consumer spending.
Before launching new stimulus a la QE3, the Federal Reserve seems content to ride out the current spate of economic expansion. Wall Street wasn't prepped for that.
Based on comments from Fed Chairman Ben Bernanke made last week, investors thought a new stimulus round was imminent; likely to follow even the slightest economic hiccup. Today, those expectations are reversed.
Based on the March Fed Minutes, the Federal Reserve is unlikely to add new market stimulus, short of the economy losing its momentum, or deflation setting in. And, right now, with growth occurring steadily and consistently, and with inflation running just short of 2 percent, markets are at risk for neither.
30-year fixed rate mortgage rates had famously dropped below 4 percent last week.
They're back above 4 percent now.
30-Year Mortgage Rates Back Above 4 Percent
Since 20 weeks ago, mortgage rates have held within a very tight range. They've dropped as low as 3.875% for borrowers willing to pay discount points, but have failed to break below that.
One thing that's for certain, though, mortgage rates are wound tighter than a coil.
Each time they rise, they don't rise slowly -- they rise quickly. This tells us that mortgage rates are unsustainable at their current, sub-4 levels. As a rate shopper, consider this your call-to-action. It's time to start that refinance. It's time to lock that mortgage rate. Get started with a rate quote.