Where will rates go next?


Bubble?  Such a fun word, unless you are talking about housing.  From 2012 – 2014, there was strong talk of a second housing bubble from economists.  Since then, the question has been quiet.

The Fed has done a good job of slowly growing the economy, to avoid spikes of highs and lows that created the housing downfall of 2008.  This week they are talking about the possibility of a rate increase in June.

What does that mean?  First, we won’t know until it actually happens.  The Fed committee has also been discussing communication strategies. The idea is to not announce future hikes, and let the market make their own predictions.  A good idea for two reasons:  1. In the past, not all predicted increases were made.  2.  Without the announcements, the people control the economy by deciding the types of investments they wish to make, instead of depending on a government announcement.

If and when the Federal Reserve does change rates, they are changing the Fed Funds Rate.  Not mortgage rates.  Simply stated, that is the rate banks charge each other for overnight funds to meet required institutional reserves.

Mortgage interest rates are derived from the open market, and primarily follow US Treasury Bills, Bonds, and Notes.

When the price is up, the yield is down, and that results in lower rates.  When the price is down, that means more investors are putting their money into higher risks avenues such as the stock market.  This means a stronger economy, which in turn means higher mortgage rates.

When buying a home, no one wants a higher rate.  The truth is, though, that higher rates mean a stronger economy and more job/ income security.  At any rate, mortgages are at all time lows.  Mortgage interest rates have been tracked for about 45 years.  In that time, they have never been lower than they are today.  Not even, during the boom!

Comments Are Closed