On November 7th I wrote that interest rates had jumped up at the end of the first week of November, and that they would probably settle back down slowly. That is indeed what has happened.
There is movement every day, but all this month the movement in interest rates (no matter which measurement you use) has been quite small compared to the long term trends.
Suffice it to say that investors appear to be in a holding pattern waiting for the Fed to drop the short-term interest rate shoe in December. (The Board of Governors will meet December 15th and 16th.) Investors appear to be quite certain at this point that the Feds will raise short-term interest rates when they meet next month.
Remember that when they do, they only control one short-term rate, and that mortgage rates are driven by the market.
When projecting interest rates I look at the underlying yields investors appear to be demanding as well as retail interest rates – the rates that you are actually offered. Mortgage lenders rarely follow movement in the bond market quickly when they are on their way down, as you never know when the market is going to turn. Thus, interest rates jump up, and settle down.
Yields on Treasury bonds which compete with mortgage bonds – red line above – failed to crest highs for the year. Yields on the Fannie Mae 60-day yields, which reflect what Fannie Mae needs to earn to pay the yields investors demand has also turned back down. (See blue line in the above chart.) Actual interest rates on loans locked in the last two weeks has declined a little bit since the highs hit in early November. (Green line in the above chart.)
Barring unusually good economic news we should expect small improvement in rates until the Fed meeting.
If I’m wrong, I’ll delete this post. Ha ha! All right, no I won’t, but don’t fry me for taking risks.