Lower Mortgage Rates Prevail

Mortgage rates can be as difficult to forecast as the flight path of a butterfly, but forecast we do.

Last week, we said we expected to see the 30-year fixed-rate mortgage fall after the Federal Reserve announced there would be no tapering of quantitative easing. Our forecast was for the rate on the 30-year loan to fall below 4.5%, and possibly trade in the 4.25%-to-4.5% range for the near future.

It looks like we got it right. Bankrate.com's latest survey shows the 30-year loan averaged 4.47% nationally. Of course, some local markets didn't see quite that much reduction, while others saw more. But all in all, we are seeing rates lower than we've seen in the past four months.

We expect the 30-year loan to hold near today's levels.

The fact is that economic growth remains sluggish. The latest and final revision of 2 nd quarter gross domestic product (GDP) shows less growth than expected. The consensus estimate was for GDP to grow at a 2.7% annualized rate, but the final number shows a 2.48% growth rate. Sluggish GDP growth gives the Federal Reserve reason and room to continue buying $40 billion worth of mortgage-backed securities (MBS) each month.

In addition, concerns over a looming federal government shutdown, due to political wrangling over the debt ceiling, will keep interest in Treasury notes and bonds high. Investors are also pondering what impact the Affordable Healthcare Act (Obamacare) will have on businesses when it's implemented next month.

In short, there's a lot of uncertainty that will keep investors interested in haven securities like Treasury notes and bonds and MBS. Their interest should help hold mortgage rates at these lower levels.

To be sure, we see little impetuous for mortgage rates to move much high. But keep an eye on next Friday's employment report. Should that come in stronger than expected, rates could temporarily spike.

On the flip side, if the employment report comes in weaker than expected, rates will move lower. The past couple employment reports have disappointed, so it's likely most economists have proffered less-optimistic predictions.

Our crystal ball points to job growth meeting or slightly exceeding exceptions. In that case, we could see an uptick in mortgage rates at the end of the week. But with all the other uncertainties baked into the credit markets, we doubt rates would move meaningfully higher.

So we see an extended opportunity to take advantage of lower rates. Keep in mind, though, the long-term bias – an eventual tapering and higher inflation – points to higher mortgage rates down the road.

The risk, as we've said so often, remains in procrastinating.

Courtesy of Jessica Regan.

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