The last 4 years have been remarkably consistent in terms of seasonal rate movement. Mortgage interest rates included. They rise to start the year and then come down in the summer and set new all-time lows in the fall between September and November, drifting up into the new year.
Will this year be different? I think so. Here’s why:
1. The primary reason that rates come crashing down each summer/fall is because the FED unveils a new stimulus program, be it Quantitative Easing I, II,III or operation twist as we saw Sept of 2011. This time they have already projected a somewhat unlimited stimulus into the future as needed. If rates continue to move up this winter I don’t see what the FED could announce in the way of a groundbreaking new program that would pull them back down again.
Also and possibly most importantly is that there may be upcoming changes to the Fed’s policy stance and a shift in leadership could trigger this. Bernanke’s term is set to expire this year and whomever replaces him may not be so in favor of FED stimulus and low, low, rates.
2. The economy is showing major signs of recovery, lead by housing, and and this point potential disaster seems relatively remote. As the economy continues to strengthen and improve, it will naturally bring rates with it.
3. Widespread changes are happening again in the mortgage industry, many of which will make getting a loan more expensive in terms of fees and this usually gets absorbed in the rate.
My specific Prediction: Currently, the Benchmark 30 Fixed rate is at 3.5%. The all time lows seen this past fall were 3.25/3.3%. I expect rates will move towards the 4.0% mark in 2013 and we wont have this 3.5% rate for more than 1 month and then we will be in the 3.6/3.7% during spring. These rates are for a 30 year fixed mortgage under $417,000 with equity and high credit scores. These rates are considered par, meaning no points, but standard transactional closing fees.
So why exactly are mortgage rates moving up right now? As is always the case there are several converging factors but the two most prevalent seem to be the stock market growth and money moving into equities and out of bonds (bonds including mortgages are safer so when the market and investors get more optimistic they tend to buy into the stock market and sell bonds, pushing rates up and prices down) and the Fed’s recent comments that the new Quantitative Easing, dubbed QE3 may not be needed much longer, or past 2013. It is important to remember that the mortgages are artificially low because of the Fed’s program and if the FED pulls back, even a rumor of such, will send mortgage rates soaring immediately.
What does this mean to the homeowner? If you are planning to refinance or purchase a new home at these rates, you may want to act now or be prepared for higher rates.
How much Longer do we have at these current low rates? I think rates will stat in the range they are at now, up until the debt ceiling issue gets resolved or at least for now. Assuming Congress is able to solve this, even temporarily, rates could move up sharply at that point in time and continue moving up into 2014.