June 12th Market Update: Thoughts on Interest Rates

Good Morning!

Once again we’re seeing interest rates remaining at the highest we’ve seen in quite some time. So, what does the future hold. 

Well, eventually Andre will start crawling, then walking, then I’ll be wondering how I’ll ever survive home life with two little kids testing every ounce of my patience….wait, let’s stick with market news here. I’ll figure out the parenting thing another day ;-)

Many industry analysts are predicting that within the next 12 months the 30 year fixed interest rate will have risen back up to 5.25%.  4 years ago, that seemed like a pretty sweet deal and in reality, it is still a great interest rate for any homeowner.

Here’s why I think that prediction is WRONG!!  Perusing over the statistics about the economy and jobs and all the other positive news I’m still convinced that our current recovery is firmly footed in the housing industry.  Any time over the past 4-5 years that the mortgage’s have been harder to come by or homes more difficult to sell, the entire economy slows down.  Why? How can we spend money if we’re stuck with a mortgage payment that is higher than we’re comfortable handling?   Rates are rising because analysts are assuming that once the recovery hits a certain point, the Federal Reserve will stop intervening. 

The problem is due to the circular nature of this entire endeavor.  The Fed stops intervening, interest rates rise dramatically, the housing market slows back down, the economy then reverts backwards.  This all leads to the Fed RE-intervening to stimulate the housing market and therefore the economy as a whole.   Because of this I believe the interest rate rise to 5.25 is wrong in the sense that it’s a NOT a permanent move as the predictions suggest.

Everything I’m seeing (from my industry bias, of course!) is that as a country, we are still too tied to housing financially so when rates rise, there will have to be intervention to bring them back down to keep the housing market moving. Be patient, things will come around.  We won’t see rates in the 3s again, but the 4s are not going to vanish forever.

Have a great week!

Matt

Rates: 30 year fixed at 3.99% (APR 4.053) and the 15 year at 3.125% (APR 3.37), FHA: 3.625% (APR 5.721): As always rates change with individual credit scenarios and programs, APRs are estimated based off of a $250,000 purchase price with 20% down and a 740 credit score, if you want an exact quote, call. These are not quotes, merely a baseline measure to gauge how rates change from week to week.

Matt
 
Matt Royer
Mortgage Consultant, CMC | Homes Mortgage
NMLS# 366970
 
612-232-7646 c
651-770-0637 o
651-294-1001 f
 
www.MattRoyer.com
mroyer@homesmortgage.net
 
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