When the Fed initiated the stimulus program to purchase billions of dollars worth of Treasury Securities.
Mortgage interest rates were expected to lower as investors began buying up these MBS (Mortgage-Back Securities)… and they did. However, just a couple of days later, mortgage rates began moving higher and have continued to increase ever since.
Here are some reasons why:
- Stronger than expected data caused investors to raise their outlook for economic growth.
- Substantial opposition from other countries as well as many U.S. politicians & economists towards the Fed Stimulus – meaning that the Fed will face strong resistance to any future expansion of this stimulus program.
- China’s announcement of a rate hike (in order to compete with other yields in Chinese markets) has direct pressure on U.S. yields.
- Foreign investors reduced their holdings in securities and mortgage-back securities as the dollar weakens – this causes yields & interest rates to increase.
There are many more explanations one can bring up to try and understand the sudden increase in mortgage rates; but the bottom line remains: when mortgage rates reach such extremely low levels, they are prone to change direction very quickly and without too much notice.
Consumers should NOT play the waiting game if they are considering to purchase or refinance their homes. With interest rates still hovering in the mid 4% range for a 30 year fixed & home values at a significant discount – this is probably a very good time to make a move.