Interest rates are great now but…

We currently at record low interest rates which is great for the current real estate market but how long can we expect to see them at these levels. Larry Baer with Market Alert has written a great commentary regarding this subject.

Commentary By Larry Baer:

Thank-you Mr. Bernanke – your plan is working like a charm so far.

In the past two trading sessions, the yield on the 30-year Treasury bond has jumped by more than 30 basis points, the biggest two-day rise in more than 15-years.  Expectations that inflation will soar from a coming massive spike in government borrowing has led traders the world over to dump Treasuries.  Normally, soaring Treasury yields would drag mortgage interest rates higher as well.  But not this time.

Fortunately for all of us in the mortgage industry Fed Chairman Bernanke and his fellow central bankers moved proactively in November to put a $500 billion buffer between rate sheets and the stresses in other areas of the credit market.  While the Treasury market has been crushed with sell orders – the Fed has been busy aggressively buying mortgage-backed securities to support steady to lower mortgage interest rates.  As long as the money holds out — this will be a sweet, sweet deal for mortgage lenders and borrowers alike. 

I have no intention of raining on anybody’s parade but I think it is worth at least noting that at the current pace mortgage-backed securities will soon be approaching yield levels that only a Fed Chairman could love.  Once Mr. Bernanke and his band of merry central bankers exhaust their available capital – no one else (in terms of other investors) will be at home to pick-up the slack and mortgage interest rates will rise.  That is certainly not going to happen today, this week or even this month probably – but somewhere toward the end of the year (in my opinion) mortgage interest rates will likely begin to move notably higher from current levels as they are finally allowed to seek their natural level. 

The central feature on this week’s economic calendar will be Friday’s December nonfarm payroll report.  The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month’s 6.7% level.  Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values.  If so, the report’s impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all.  In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher.

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