We’ve been hearing for a good solid six months now that interest rates for home mortgages are about to rise. Any day now. No doubt about it. Yet they have remained at approximately 4.875 percent for a conforming 30-year, fixed-rate loan since late last year.
Are they about to rise? Don’t ask me, I’m just a Realtor! But local banker Richard Uhl, vice president and real estate loan officer for First Interstate Bank, seems to think so. Uhl is one of those local real estate professionals who pass along their research to local Realtors so we can share with our clients. He does so with his weekly “Economic comment and Rate Sheet.”
“Fact is the Fed’s massive purchasing program is just about over (and this translates to home loan rates rising in the near future),” Uhl writes this week. “The program is set to wrap up March 31. The Fed is clearly starting to ration their purchases.”
Other highlights of his weekly missive include:
- Approximately 95% of the total $1.25 trillion has been spent (the Fed was purchasing about 3 out of every 4 home loans this past year). When such a large buyer leaves the market, it is very likely that prices will worsen and Home Loan Rates will rise. Why haven’t we already seen an increase in rates? Take a look at what is happening in China and especially, Greece (we will discuss later). Investors are still finding a safe haven in the US Bond market, thus helping to keep our Home Loan Rates low.
- Fed Chairman Bernanke is discussing a switch from monitoring the Fed Funds Rate (a “target rate” that they do not have complete control over) to “interest paid on excess reserves” that banks hold with the Fed. The Fed controls this rate and feels it will be a more reliable benchmark moving forward. It appears that the Fed is preparing for “higher” rates ahead.
- ON THE WORLD FRONT: China has tightened their monetary policy to slow economic growth … this likely means that China will buy fewer exports from other countries, slowing growth globally (lower inflation, initially good for Home Loan Rates, not so good for stocks). Large fiscal debts in Greece have caused speculation that the country will default on its government debt. Investors began moving money into US Bonds for safety (good for Home Loan Rates).
So look for our historically low interest rates to start climbing in the coming months. Without a doubt. No, really!
Seriously, if there are buyers waiting for interest rates to go lower, that may be unrealistic. Again, I am not interested in trying to predict the market bottom or create irrational exuberance, but all signs point to the first two quarters of 2010 being a historically excellent time to buy in Jackson Hole. Let me know if I can do a personalized market analysis for you.