Once people know that I am a Loan Officer the very next thing out of their mouth is "What's going on with Interest Rates ". This is a hot topic that has no easy answer but demands some sort of answer and here is mine.
We are witnessing a meltdown in the mortgage industry like we have never seen before. The commodity that I deal in is the Mortgage Backed Securities or the MBS. This commodity is bought and sold on the open trading floor. It has always been a safe place to invest whether you are a commodities trader or manage a large investment portfolio. In the past the MBS have been as safe as a CD or passbook savings. The "Risk" was very low. Today with all the fallout from lenders like Countrywide, Washington Mutual, First Magnus and Bears and Sterns making headline news (and the rise of the foreclosure rate) this commodity is now viewed as risky! When you are dealing with a commodity that has some tarnish, it now has to be priced to sell with the "Perception" of risk.
Another thing people say is "But what about all the Fed cuts? Why aren't rates lower?". Historically interest rates have always moved ahead of any of the Fed cuts, up or down. Even though the Fed doesn't control the interest rates on MBS mortgage interest rates do tend to follow the direction the Fed is moving. So in theory with all the Fed cuts we should be at or below 5% but with my last comments about the risk involved we will be lucky to see rates below 5.5%.
Remember, I'm right only about half the time, the market is always right!