Fixed Mortgage Rate Forecast – July 2013

5 year fixed mortgage rates are currently overpriced and you can expect to see a 0.25% drop in the next 30 days.  Fixed mortgage rates are priced off of bond yields of the same duration.  Last month the market reacted to comments from the Fed’s Ben Bernanke and bond yields shot upwards by 50 bps.  This reaction was without merit as Mr Bernanke’s comments were nothing new from his previous position with regard to quantative easing and the government bond buy back program.

The spike surprised most market watchers including Mr. Bernanke who has retaken the podium in attempt to clarify his intentions and calm markets.  Higher fixed mortgage rates are not good for the economy and the Fed knows it.  Over the past week 5 year fixed bond yields have already dropped back by over 20 bps and this trend is expected to continue for at least another 10 bps and then level off.

What this event has highlighted is that the jittery market is expecting bond yields to rise soon.  The market players don’t want to be the last one in the pool and are looking for any signal beat the curve to unload their bond portfolios.  Perhaps they’ve learned a lesson here, low bond yields and low fixed mortgage rates will be around for some time to come.

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