There are some big concerns among people looking to become homeowners, and not the least is the current trend of rising mortgage rates. They may appear scary on the surface, but it doesn’t signify the coming apocalypse by any means. If we take a closer look at the reasons behind this recent trend, it all makes perfect sense.
It all started with a speech. Chairmen Ben Bernanke of the Federal Reserve told Congress in May that the Fed could begin to reduce its buying of mortgage-backed bonds. Up until now the Fed has been buying $85 billion a month in US and mortgage bonds, which has resulted in lower rates and stronger housing and stock markets.
However, according to Bernanke, this monthly purchasing has been in relation to the US economy. Since the economy has been improving, and the unemployment rate decreasing, Bernanke declared that the Fed has laid out plans to begin tapering down the amount of bonds it purchases. Eventually, if the unemployment rate continues to lower, it may cease buying altogether. But if the economy falters, the Fed will continue its support on the market.
This led to buyers becoming nervous about the prospect of higher rates and not wanting to be the last with only the low rates. The result: almost everyone immediately ceased buying mortgage-backed bonds for themselves. Some have even sold their shares. Rates inevitably have to rise now to attract new buyers, and thus the present volatility of rising mortgage rates.
This is not an easy game to play by any means. No one can know for sure exactly when rates will change and whether they’ll go up or down. The Fed is making these decisions to bolster the economy; it will continue its support as strong as ever if the economy weakens again. Perhaps even stronger. But if the current mortgage rate looks appealing to you, I suggest you take it; you never know what it might look like tomorrow.