After Big Drop, Mortgage Rates Tick Up, November 2, 2011

Yesterday was like a carnival ride with as many dips and turns as the best can provide.  With the surprise announcement that Greek Prime Minister George Papandreou would submit the newly agreed to deal to provide more assistance to his nation to his citizens in the form of a referendum, the global stock markets exploded to the downside.  When all was said and done yesterday the Dow Jones Industrial Average was off almost 300 points and mortgage-backed securities became a very popular safe haven.  Today current mortgage rates are likely to give up some of their improvement from yesterday.

Driving mortgage rates today are several factors including a sense that yesterday’s moves may have been too great given the uncertainty of the impact of the Greek move.  Additionally, important economic data and news is available regarding the US economy that will enable trading based on facts as opposed to speculation.

The ADP Employment Change report indicated that 110,000 new private sector jobs were created in the past month.  While this is an anemic result, it is higher than last month’s reading and higher than expectations for this month.  With all the chaos in the news from Europe it is a positive indicator for the US economy that employers have not shut down hiring completely.

Also of significant importance today is the announcement and statement from the Federal Reserve following their quarterly Open Market Committee meeting.  Of even greater significance is the fact that today Federal Reserve Chairman Ben Bernanke will also be holding a press conference to further explain the committee’s statement.  The Fed decided last winter that it would begin holding these press conferences twice a year to better communicate their positions.

So what will the Fed announce today?  There is great debate among analysts and other “Fed watchers” about what the FOMC is likely to announce today.  Some believe that they will announce a clear intention to consider a new round of quantitative easing (QE–purchases of US debt), while others believe they may simply seek to clarify their intention to hold rates low for an “extended period of time”.  My opinion would be supportive of the latter group.  I do not expect further QE.

Home purchasers and refinancers should keep a close eye on the markets and would be wise to lock rates as soon as possible.