From The Old Mortgage Guy’s Almanac: Foolish April Weather

From The Old Mortgage Guy’s Almanac – Foolish April Weather:

April’s weather can fool many of us into thinking that winter is hanging on. We probably think the same way about current interest rates staying low forever, so don’t be fooled!

The feds are officially ending the support for the mortgage market on March 31st and have already slowed down the purchase of mortgage backed securities. The massive buying of mortgage backed securities by the feds overall lowered the rates by about 1%, but we already can see that the fed is already slowing their buying and, rates are starting to tick up. We will probably see rates go back to around 6% by the beginning of April.

photo credit: Muffet

So who is going to buy mortgage backed securities after the Federal Reserve completes their intervention? The answer is private investors. However the big question remains how attractive will mortgage backed securities be to the private investors once the government-induced demand disappears? If the Dollar remains fairly strong and the unemployment rate keeps declining we might see an environment where rates might make a move . In other words if the whole economy keeps improving (a strong dollar, adding jobs) private investors might be willing to accept higher risks and money might start flowing to the capital markets to the detriment of the bond market. In sum, positive signs on the stock market are negative for Mortgage bonds.

April 5th the new, higher one time MIP on FHA loans goes into effect and the upfront mortgage insurance premium goes up to 2.25%. The First Time Home Buyer Tax Credit is also set to expire in April (you must be under contract by April 30th 2010). So we have a bunch of uncertainties ahead of us which could influence the Housing Market and Mortgage Climate.

I wished I had a the “Old Mortgage Guy’s Almanac” to predict the mortage and real-estate-market, but I dont. So I just can give you my most educated guess. Regardless on how well the overall economic climate improves, rates will likely go up because the feds will stop their intervention.

So regardless if, as you’re reading this, there are still low interest rates in the air, make no mistake, higher interest rates are on its way!