Refi or Bust?

By | October 28, 2014

 In 1858 the prospect of gold in the Pike’s Peak Country or what later became known as the Colorado Territory of the United States lead to one of the greatest gold rushes in United States history with the prevailing motto of the day ‘Pike’s Peak or Bust!’ as prospectors rushed to claim their share before the gold dried up. While this has relatively little to do with mortgage rates, given the current rate and economic environment, it is possible we could see a refinance boom as borrowers rush to take advantage of uncharacteristically low rates before they disappear.

For thoseGold Rush who follow the markets, October 14th and 15th were exciting days as rates dipped to the high 3’s, the lowest they have been in almost 16 months. Although they’ve come up slightly, they are still holding close to 4.0%, the result being that we could see many borrowers looking to take advantage while rates remain favorable. Indeed, the Mortgage Banker’s Association has already reported that refinance applications have jumped from 56% to 59% of the share of mortgage applications on the heels of this drastic change.

Many attribute the sudden drop in rates to trading overseas, primarily in the Asian and European markets, the buzz phrase being ‘concerns with global growth’. However, it may not be trading abroad that will drive rates back up, it could more than likely be events at home. This Wednesday in particular, the FOMC meeting will have many waiting with bated breath as it is expected the Fed will likely be ending their asset purchase program (QE3) or at the very least will be discussing an ending to this program. Depending on the outcome, the result will likely be an increase in rates as the markets brace themselves, however, any market movement will certainly depend on the Fed and what they decide.

On the bright side, for the past several months, each time the Fed has met markets have anticipated the end of QE3 and while the Fed has scaled back on their asset purchases, we haven’t seen the program come to a definitive end yet. So, while the outcome of the Fed meeting is uncertain, what we can be certain of is that the market will be volatile this week and trading will likely be driven by the results of Wednesday’s meeting with markets hoping for the best but preparing for any less than welcoming news.

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