We so wish we had a crystal ball to determine where interest rates were going in the next year. Obviously no one does, but we keep in contact with our mortgage partners as they dissect all the financial information that impacts mortgage rates and keep us updated. This is an email that we just received that James Prince said I can share in this blog:
Just a friendly email to all of my real estate partners to let you know my estimation of the direction of rates in the next 30-180 days.
The feds announced last week that their intention is to wean themselves completely out of the MBS bond purchasing program by the fall. They are going to accomplish this by cutting their spending by $10B each month until they are completely out of it altogether. What does this mean for rates?
Unfortunately if another buyer doesn’t step in to supplement the market with what is being taken out, it means they will go up. Lack of purchase interest in bonds, means the price will go down, and inversely rates will have to go up.
Since the feds have started scaling back their bond purchasing program (it has been cut in half so far) Interest rates have gone from the Mid 3s to the high 4s and in some cases low 5s. As they continue to do so, and once they are out altogether, interest rates will likely be in the mid to high 5% range. With the unemployment rate being at an acceptable level for them to stop quantitative easing, they have also left themselves wiggle room to discontinue it completely ahead of schedule if they should choose to do so.
I don’t believe they will do so because a substantial increase in rates could stall the housing market too much and will be counter- productive, but they have left it as an option. My belief is that they will gradually back out as planned, slowly raising rates so as not to scare the market and completely stall housing starts.
However, impact in the next 30 days will likely be interest rates in the low 5’s starting sometime in early April if China, or another private investor doesn’t pick up the $10B the Feds are backing out of. Longer range impact I believe we will see low to Mid 5s in May and June, and Mid to high 5’s through June, July and August. We knew this was coming eventually, so it’s time to MOVE! By the fall Rates will likely be 1% higher than they are now. For many this means purchasing smaller or less expensive homes than they are thinking about now. For others, it means paying hundreds of dollars more per month for the home they want in the price range they are looking for.
Feel free to send to borrowers you have been working with for a while who may be indecisive about buying, or selling their home and buying a new one. Buy now for less while you still can.
This is of course my interpretation of the market direction based on several years of closely following the mortgage backed security market, and the government’s involvement in it through quantitative easing, and the impact the lack of government involvement will have on that market.
The opinions are completely of my own.
Sincerely,
James E Prince
James E Prince
Sales Manager
Bayshore Mortgage Funding
1686 Village Green Suite 103
Crofton, Md 21114
Cell: 407-430-6277
Office: 443-201-2114
Fax: 888-977-3791
NMLS# 186488
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