Interest rates after the government shutdown

The government is finally back in business (at least until Jan. 15th). It’s been a long two weeks for many. People are back at work, and yesterday we averted the debt ceiling crisis (at least until Feb. 7th). So now that things seem to be back to normal, are they really?

We saw after the first week of the shutdown (on 10/4) that according to Freddie Mac, the average weekly interest rate for a 30-year fixed-rate mortgage dropped from 4.32% to 4.22%. By the 10th of October the rate had only risen to 4.23%. As of yesterday, the rate had risen to 4.28%.

If we go back to a post from September, you will remember that interest rates tend to bounce around in bands. See graph below:

August2013-21

As you can see, for the first half of 2013, interest rates were in the 3’s and they bounced around that pink band for quite some time. In the month of May, they broke through into the blue band, but only stayed there for about a month before jumping again in June to the green band. They stayed in that green band all through the summer and most of September, and many economists predicted they would continue to bounce around there and then ultimately go higher.

Then the government shut down.

After that, rates went back down into the blue band and stayed there for two weeks. This week they peeked above and entered the green band again, but not by much. Now that the government is up and running, will we see the rates begin to steadily rise? Time will tell.

One thing to note in all of this is that back in August and September, rates stayed around 4.5% for five weeks straight. Then they suddenly dipped to 4.32% for the week of 9/26. This occurred shortly after the Fed’s announcement that it was going to hold off on tapering its bond-buying program. So the rates already had a head start in the downward direction before the government shutdown. The shutdown just lowered them even more.

As we progress through the fall and winter, it will be interesting to see where the rates go. Fun stuff!

Have a great weekend!

(Information for today’s post from Freddie Mac and KCM)

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