Do you ever wonder where interest rates are headed?
I do. Not only is it my job to be in touch with those things, but it’s probably the single most frequently asked question I get: “What do you think rates are going to do?”
The honest answer I give is, “I don’t know. If I did, I could see the future, and I’d be sitting on my favorite beach or slope-side chalet, sipping my favorite beverage, instead of helping you with your real estate financing.”
But, as I thought about that question as we rolled into 2018, I decided to take a deeper dive. Of course, we’ve been in a declining interest rate environment my entire 15 year career as a Mortgage Broker, so my perspective may be a bit skewed by that reality. But regardless, it goes deeper than that, I found.
Since 1974, when mortgage rates began being tracked on a weekly basis, we’ve seen rates end the year lower than they entered it, a full 57% of the time (Federal Reserve Bank of St. Louis). And, that includes the spike we saw during the “hyper-inflation” days between the late 1970s and the early 1980s, which covers roughly 7-8 years. Additionally, about 9% of the time, mortgage rates were basically flat as they rolled into the New Year. That leaves roughly 36% of the time that we’ve seen rates increase from the start of one year, to the end of the same year.
Of course, past performance is not a reliable measure of future returns. Nevertheless, it’s an interesting fact to think about, particularly since rates are again lower now, than they were leaving 2017 and entering 2017.
So what’s that mean for us, and what might mortgage rates actually do this year?
Again, nobody really knows. But, it does feel like 2017 was about a bond market (and mortgage backed securities market) looking for direction. Or maybe it was about a bond and MBS market not so much looking for direction, but not really believing the “hype” of the equity markets.
Judging by the stock market, breaking through 25,000 on the DOW, everything is rosy, right? We’ve got continued jobs growth. We’ve got new tax legislation that is supposed to prime the pump of the economic growth engine. We’ve got a pro-business, pro-growth administration in the White House and Congress.
So what could go wrong?
Well, inflation – as conventionally measured – is still below where the “experts” think it should be when the unemployment rate is at a 17-year low. Wage growth, a key driver of inflationary pressures, is still lagging behind expectations. It’s possible that the tax legislation will stunt its own economic impact by further expanding our national debt. At some point, deficits do matter; the odd thing is, they don’t until suddenly they do (Carmen Reinhart and Kenneth Rogoff have written extensively about this). Job growth, although still increasing handsomely, has actually been on a declining trend since 2014 (Bureau of Labor Statistics). And lastly, we’re entering the 9th year of an economic expansion. That is the third longest economic expansion in US history. So again, what could go wrong?
On the other hand? Money remains cheap and easy. Corporations (and it’s really the small and mid-sized businesses that create the most jobs) will likely enhance profit margins as a result of paying less in taxes. Maybe they’ll pass some of those profits back into growing their companies by hiring more people, and paying the employees they have more money. It’s possible that the economic juice of the tax cuts will see a continued run up in equities, benefiting the net worth of those participating in the those markets, enhancing the “economic mood”. It seems that the supply of homes is still lagging demand, so home values could continue increasing steadily for the foreseeable future, bolstering the net worth of homeowners in the US.
But the bottom line is? Ultimately, it doesn’t matter what happened in the past, nor what might happen in the future with interest rates. It’s about what can they do for you now? It’s relative. Borrowing long-term fixed money in the 3%’s and 4%’s is ridiculous, and can be pretty powerful. But, it seems ridiculous to get 15% on your savings account, too, and that happened, as well.
For my part, I see 2018 as largely a repeat of 2017, at least for bonds and mortgage backed securities. In my estimation, I’m not sure we’re going to see much of a change in either direction with interest rates as we move through this year, despite the Fed and their continued (or projected to continue) increase of the Federal Funds Rate. After all, that’s a short term rate that is only loosely correlated to Mortgage Backed Securities. MBS are bought, held and sold by investors. If the demand is there, prices will remain intact, and rates will follow suit. If that demand falters, prices will drop, and rates will rise. Supply and demand is the ultimate arbiter.
Regardless of what happens, I’ll do my best to keep you posted, and share my insight into what’s happening and give you my perspective on why.
In the meantime, please don’t hesitate to call or email if you, your friends, clients, or family have questions about buying or refinancing residential or commercial real estate.
Here’s where rates are as of this weekend.
|30 yr fixed mortgage||3.750%||0||3.800%||$ 300,000.00||$ 1,389|
|15 yr fixed mortgage||3.375%||0||3.425%||$ 300,000.00||$ 2,126|
|5/1 ARM||3.750%||0||4.000%||$ 300,000.00||$ 1,389|
|10/1 ARM||3.750%||0||3.800%||$ 300,000.00||$ 1,389|
|Jumbo (ask me about Super Conforming limit, per your zip code)|
|30 yr fixed mortgage||3.875%||0||3.905%||$ 550,000.00||$ 2,586|
|15 yr fixed mortgage||3.500%||0||3.530%||$ 550,000.00||$ 3,932|
|5/1 ARM||4.125%||0||4.155%||$ 550,000.00||$ 2,666|
|10/1/ ARM||4.000%||0||4.030%||$ 550,000.00||$ 2,626|
|Rates subject to change without notice.|
|Please keep in mind, these rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics (760+ fico, owner occupied SFR with 75% loan to value ratio or less and $250,000+ loan amount), your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. NMLS: 239756. Equal Opportunity Housing Lender. If you’d like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:email@example.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.|
EZ Mortgages, Inc.
4535 Missouri Flat Rd. Ste. 2E
Placerville, CA 95667