As most people in this country already know, rates have been hovering at or
near all time historic lows for the past 18 months. This flood of low rates is akin to another kind of flood, the once every hundred years, wipe out the family farm kind of flood. Similar because just as quickly as the low rates swept in we have seen them slowly inch back to the upside leaving behind a swath of terrible destruction. Ok, maybe my analogy isn’t the best but I’m a mortgage guy, not a writer.
There is good reason to seriously discuss rates right now as we have just surpassed the Ides of March and April is bearing down on us like a raging bear. No, it’s not that Easter ushers in higher rates but notice that I did say “bear” and not “bull”. For the past year or so the Fed, sorry, THE Fed has been purchasing mortgage backed securities to the tune of 1.3 Trillion dollars in an effort to keep the credit markets afloat for mortgage loans until private buyers are willing to return to the market. Well, the end of March also marks the end of the FOMC purchase party which will then mark the beginning of a new period of MBS bearishness. You heard me right, these low rates we’ve had are the result of our government temporarily supporting the mortgage bond market and when they are through we WILL see a pull back on bond prices and because rates travel inverse of price we will see a spike in rates. There are two questions to be asked at this point:
- How high will rates get?
- How long will they stay elevated?
How high rates get will be determined by the attractiveness of the bond versus the equity market. Remember, bonds are considered a “safe haven” and the more risky equities appear, the more bonds benefit. My prediction is that we will see rates hit 6.5% to 7% by the end of this year and if the stock market continues to pick up steam we will likely see 8% by the end of 2011. I could be completely wrong as the Euro may crash sending the dollar through the roof which could help pull foreign dollars into the bond market and reduce rates again. Once rates are elevated they will stay elevated as long as the large institutional investors are willing to play equities over bonds for fear of a devaluation of the dollar.
If you don’t want to have to worry about what rates are going to do you need to have your rate locked before April 1st. Call us today @ 1-877-742-1500 or use our handy contact form below for a free rate quote customized for your situation.
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Dio Vannucci has written 11 articles on Mortgage Brains
