Mortgage rates have continued an already unprecedented move higher. While it is possible there may be some unknown market forces at work here, we do know last Wednesday’s statement and comments by Mr. Bernanke initially triggered the market movements that have now resulted in substantially higher rates. The bench mark 30 year fixed rate (below 417K, high fico’s, plenty of equity, etc) is now around 4.625%, compared to 3.3%-3.5% seen in early May.
However, a nugget of hope is that today’s market action showed rates improving towards the end of the day, giving us reasonable expectation that rates can improve a bit from these higher levels and ultimately settle somewhere in between the range referenced above. It is possible they will continue to move up, but seems unlikely, and without a doubt would be increasingly damaging to the economy and housing markets.
Two Silver Linings – A Positive Perspective
1. Only IF the economy continues to improve and show signs of strength, should rates rise more or even stay at these levels.This can be comforting because of course a better economy would put us all (and the residential real estate market) in a better position to afford higher interest rates. And if the economy shows signs of weakening, rates absolutely could move back down at least to the low 4’s. And historically, a 4.25% fixed interest rate for 30 years is still a pretty good deal.
2. With these higher rates, lenders and banks will surely loosen guidelines and new mortgage products will enter the marketplace. Part of this is a necessity, lenders and banks will need to relax standards a bit to keep loans coming in the door, but also at these levels more private investors will have incentive to lend money to “make sense” transactions and homeowners. This private money can come in the form of hedge funds, institutional investors or even pension funds that are now interested in a 5-5% yield vs. the 3.50-4.0% available a few short months ago.
Please don’t hesitate to contact me if I can answer any questions or update you on what rates are doing.