Interest Rates Moving Higher

Interest rates for home loans are on the rise this morning after the long Easter weekend. This can be credited to weaker treasuries which have resulted in higher yields (in fact we just hit 4.000% on the 10 year) drawing investors away from our Mortgage Backed Securities market. Our weaker market has lead to higher interest rates offered to consumers - at least on today's rate sheet. Will this trend continue? Will interest rates continue to rise?

Depending on who you ask, this is a tricky question to answer. If we consider interest rates for home loans through the remainder of the year, we come to a pivotal date this November - namely midterm elections.

There is no doubt, elected officials still in office will do everything in their power to keep interest rates low for the midterms, but do they have enough clout to really impact the market which is clearly trending into higher interest rates. The climb in interest rates recently can be wholeheartedly attributed to the Fed leaving the MBS market and discontinuing their Mortgage Backed Securities purchase program. In doing so they significantly reduced the monetary backing behind private investors. By removing themselves from this market they essentially removed the safety net protecting these investors. Without the Fed protection (and deep pockets) private investors have been forced to re-evaluate their positions and investment strategies which has led to a climb in interest rates.

Other indicators suggest this trend in rising rates is potentially here to stay. Oil is steadily rising in price, and the stock market is breaking through yearly highs. Even employment numbers this month were positive although their is serious debate over this figure and what it actually means.

Personally I do not think our economy has improved enough to justify higher interest rates yet, regardless they are on the rise, but if I am right we will see rates come back down as long as inflation stays in check. My fear is inflation is the real root cause of this recent evolution in our market.

Stock market at yearly highs - why dollar is weak thereby attracting foreign investors into our market giving us our boost. Gold and oil share the same fate... up in price due to a weaker dollar - the perception is a stronger market when in reality it is simply a weaker currency. Finally the 10 year treasury is at 4.000% currently, although it is likely to fall back under 4 before the end of the day. Regardless this suggests investors, both foreign and domestic are slow to move into this investment. This has lead to higher yields. Generally speaking we look to indirect bids or foreign investing in our treasuries. Recently this indirect bid has been weak suggesting foreign economies are not interested in our bonds right now because they want a higher yield - why - because our economy and our dollar is weaker.

As far as the whispers about the Fed raising the discount rate.... this will not happen. We cannot afford it right now because this recovery does not have the foundation the media is leading us all to believe. The Fed understands the thin ice we are on right now and the weather is warming... we need to get to solid ground before the Fed will begin rising the discount rate.

With rising rates, it is time to take action, don't delay or the 5% offered today that you feel is high will look like a mirace rate when offered rates jump into the 6s and eventually the 7s - quite possibly much much higher