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Our professionals in Wealth Management have this to say regarding the recent changes in mortgage rates:

June 28, 2013

Mortgage rates have shown some volatility over the past several weeks, but last week in particular saw a fairly dramatic upturn. In fact, last week was one of the worst weeks on record in terms of rate increases for a one week period. Upward pressure on mortgage rates began in May after a better than expected jobs report. But, that didn't compare to the market alarm generated from Federal Reserve Chairman Bernanke's comments whereby he mentioned the Fed could begin “tapering” their purchases of Treasury Bonds and Mortgage Backed Securities (MBS) later this year and possibly end the purchases completely in 2014. The Fed has been keeping mortgage rates low using their third round of Quantitative Easing, or QE3, whereby the Fed is purchasing a significant amount of Mortgage Backed Securities and Treasury Bonds. This purchasing creates the liquidity needed to keep rates low while also increasing the value of the underlying security. If the Fed begins to “taper” these purchases, then overall interest rates will likely increase, with the underlying prices of the bonds decreasing as there will not be investors interested in buying these same Treasuries and MBS at lower interest rate levels.

Given the Fed's comments and recent volatility in the bond markets, it's difficult to predict what will happen next regarding overall interest rate levels and mortgage rates in particular. If the economy continues to show strength, especially in regards to the unemployment rate, then the FED will significantly taper or end QE, probably resulting in little chance of us going back to the consistent low levels at or below 4% again for 30 year mortgages. However, if the economy slows (or is not as robust as presented) and the unemployment rate remains elevated, the Fed may have to recommit to QE on a sustained basis which would put downward pressure on mortgage rates again. We'll have to wait and see how all this plays out. Regardless, we may see some near term small drops in mortgage rates, but we most likely will not see 30 year mortgage rates consistently at or below 4% for a while. Finally, as noted in the opening comments, while rates have risen off their lows (with 30 year mortgage rates currently in the low to mid 4% range), it's still a great time to finance and buy a home!

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