Previous posts (here, here, and here) discussed the inevitable possibility of interest rates moving higher around the end of May/early June of this year.
Why did I feel this would happen?
The Federal Reserve began a campaign that purchased Mortgage Backed Security Bonds. This action pushed bond prices higher while forcing interest rates lower. The plan was scheduled to end June 30th. Since market movements predicate on what could happen as much as what does happen, the feeling was rates would move higher once we were around 30 days of the program ending.
Those reasons for the potential rate increase were ruined once the Feds announced an extension of the plan through 2009. Sadly though, rates still climed at the very end of May.
On Wednesday, May 27, 2009, interest rates increased roughly a half a point in one day!?! What exactly happened?
The past couple of months saw interest rates trading in a range of 4.625% to 4.875%. When rates moved to 4.625%, they would start to slightly increase, and vice-versa. When the market opened Wednesday morning, rates were on the high end of that trading cycle; meaning, the trend showed they were moving in the wrong direction.
Then supply-and-demand took hold. There was an over-supply of bonds in the market Wednesday due to a new 2-year treasury auction. Couple that with a positive economic outlook for the rest of 2009, and you have a recipe for disaster.
In the end, it seems my prediction on when rates would go up was right. Most of the time, it’s better to be half right rather than being completely wrong. In this case, I would rather have been wrong about both the when and the why. Higher rates aren’t good for anyone at the present moment.
Coming soon… Higher rates? OK, now what?… thoughts on what to do as we move forward.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.
