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McLeans market musings for June 27


Blog by Nick Swinburne | June 27th, 2013


The past week has been a dramatic one as far as interest rates are concerned.   Last Wednesday the US Federal Reserve chairman, Ben Bernanke, stated that the gradual unwinding of stimulus measures could begin in the fall.  If the current economic growth stays on track, the entire stimulus program could be gone by the middle of 2014.   This news shook the markets as it creates some uncertainty about whether the US economy can maintain positive momentum without the aid of stimulus programs.   This caused a rapid increase in bond yields which has caused lenders to increase fixed term  interest rates across the board.  The greatest changes were seen in 5 year and 10 year term rates, which some lenders increased by 0.5% in less than a week.    Some lenders have not increased rates so drastically but could still push things higher if bond yields continue to rise.   As of today, the best 5 year fixed  rate is 3.24% and the best 10 year is 3.69%.   As the past week has shown, it is always better to be prepared and the best way to do this is to keep in touch with your mortgage broker so the best rates are held for you.  Rate holds are usually good for 90 to 120 days.

The markets will be watching closely for more signals from the Federal Reserve on the timing of stimulus withdrawal.  This will depend on US economic performance, with any poor economic news potentially delaying the stimulus withdrawal and any positive economic news quickening the beginning of a reduction in stimulus.   The most likely short-term scenario (one month) is a slight reduction in bond yields leading some lenders to pull back on rates a bit.   It is extremely unlikely that rates will return to the historic lows of last week.    Bond yields, and also interest rates, will be volatile over the next few months, as markets overreact to every economic news item.    This may provide some opportunities for market speculators but as far as interest rates go, obtaining a rate hold will be the best insurance for consumers considering a purchase, a refinance or looking to renew.

One scenario that must be considered is what happens when the Federal Reserve actually starts the tapering of the stimulus program, rather than just talking about when it may happen.   The markets went crazy and interest rates spiked due to mere speculation of an event that will occur sometime in the future.  When that event actually happens, one can assume that the resulting market chaos will drive rates significantly higher.    Potential  buyers are advised to obtain rate holds and move up purchase dates to avoid potentially higher rates.

Cheers,
Jason

Jason McLean   BSc, AMP
The Mortgage Centre: Garibaldi Mortgage
www.garibaldimortgage.com
fax: 604-905-3801
cell:  604-935-9190