Mortgage Rates Stuck in a Holding Pattern? Not for Long!

Over the last few weeks, we’ve had significant news regarding the economy, and a very significant announcement regarding the mortgage industry.  However, mortgage rates have moved very little.  Manufacturing continues to drive our current recovery forward, with the ISM Manufacturing Index leaping to its highest level since 2004.  GDP numbers also rang in positive with a whooping 5.7% first reading for the 4th quarter of last year.  Unfortunately, all of this is not yet translating to a significant improvement in the labor market.  While the unemployment rate did slide down to 9.7%, the economy is still shedding jobs.  While optimism for this recovery remains high, there is ample evidence that this recovery will be an uneven one.
 

In the Fed’s last meeting, a widely anticipated announcement was made.  At the end of March, the Federal Reserve will terminate its program of buying mortgage-backed securities (MBS’s).  This program, launched at the end of 2008, kept the secondary mortgage market from completely collapsing, and likely saved the housing market from going into a darker hole than it did.  With the Federal Reserve no longer supporting the secondary market with direct purchases of MBS’s, many analysts believe we will begin to see mortgage rates experiencing some significant upward pressure as the year progresses.   While this will very likely serve to push rates up, the muted recovery and the Obama administration’s proposed new tax structure to punish large banks could serve to keep rates from climbing too quickly.
 

In the near term, mortgage rates could move either way.  While there is both upward and downward pressure on rates, it is worth noting that the probability of rates moving upward quickly is much, much higher than a large drop in rates.  We’ve also begun to see some occasional signs that inflation may once again return to the market, which makes it even less likely that rates will move much further downward.