Supply and Demand: Why Mortgage Rates Aren’t Rising

• July 15, 2014

by Lark Turner

Pretty much everyone predicted mortgage rates would climb in 2014.

Lawrence Yun, chief economist at the National Association of Realtors, said in November 2013 that rates would rise this year “due to the anticipation that the Fed will start to raise rates in 2015.” He predicted an end-of-year average rate of 5.4 percent. But it’s mid-2014, and rates are actually lower than they were a year ago. MarketWatch’s Amy Hoak says that’s thanks to a supply and demand problem.

While the Federal Reserve did taper purchases of mortgage-backed securities through quantitative easing, Hoak notes that the tapering happened to occur at the exact same time that the volume of new mortgages started dropping. Freddie Mac’s Leonard Kiefer and Frank Nothaft said that was causing rates to stagnate.

“The Fed’s acquisitions, as a ratio to new issuance, are slightly higher than a year ago. In other words, the Fed’s ‘demand’ for new MBS has declined less than has new ‘supply’, thus keeping the Fed’s share of MBS issuance above year-ago levels,’” Kiefer and Nothaft recently wrote.

The decline in mortgages, Kiefer and Nothaft pointed out, is also because people are refinancing less, and first-time homebuyers aren’t purchasing at their normal levels. Rates will rise again soon, probably accompanied by rosier job figures and rising inflation, Guaranteed Rate’s Ted Ahern told MarketWatch.

This article originally published at http://dc.urbanturf.com/articles/blog/supply_and_demand_why_mortgage_rates_arent_rising/8737