Where will rates be in 6 months?

Question

Hey guys,

I wanted to get your opinions on where you see mortgage rates going in the next 6 months - 1 Year. Obviously hard to answer given the circumstances but are sub 3% 30 year fix rates on the horizon ?

- Mike

Joseph Cacciapaglia · Answer

I can answer this question with 100% certainty: they'll either be higher, lower, or the same. In the last downturn, I saw a lot of people miss their opportunity to refinance, because they were waiting for 2%, and it never quite got there for them. Then they missed 2.5%, and then 3%. Trying to time and or predict rates is a futile endeavor. If you would benefit from refinancing today, you should go for it. Rates are very low right now by any standard, and the risk is to the upside. Historically, lenders have increased their spreads when bond yields have gotten very low. That makes it very difficult for rates to travel much lower.

If you're wondering about rates, because of their impact on prices. That becomes even more of a guessing game. Sure, in general lower rates lead to higher prices, but if rates are low due to macro economic uncertainty, then all bets are off. I remember when I got my first mortgage at 6.5%, and thought that was an amazing rate. At that point in time, prices were surging, because of the "great rates". When rates sunk from 6.5% to 3.5%, that was a big deal, but going from 3% to 2%, is much less so. I don't believe rates will ever dip much below 2%, because lenders will always need their spread. Of course, I'm just out here slinging dirt, so I could be completely wrong about all of this.

Russell Brazil · Answer

Rates will not drop below the all time lows which we saw I believe in 2013, as well as 2 weeks ago. Rates today are significantly higher than the short term drop from 2 weeks ago.  There is simply far too much demand on the refinance side, combined with Fannie Mae raising the guarantee fee they charge to lenders, combined with the uncertainty in the market meaning investors do not want to lend out at sub 3% returns.  The expectation that rates will significantly drop is simply not realistic. As we stand today, lenders are increasing rates and fees significantly to slow their refi business which is being driven by the perception that rates are low, even though we are far off the lows.  Just talked to a lender earlier today, @Upen Patel and he said on a cash out refi, that he was quoting 3 points to get a 4.75% from one of the lenders he brokers for. To put that in perspective, before the crisis to get that same rate you were probably looking at 0-.5 points.

Jaysen Medhurst · Answer

No one knows, @Michael Belmore. Considering all that's happening, it's hard to imagine that rates will go up. I think once this recent surge of refinances die down you'll see rates float down. How far? Who knows? I'm watching and will refi if they fall to the 2-2.5% range. The Fed has already shown that they're willing to buy up mortgage-backed securities and I doubt that will subside. This will encourage large banks to continue to write mortgages, since they don't make their money on interest charges, they make their money through origination and servicing fees.

The rub, of course, is that there's no way to know what happens with liquidity and the direction of the broader credit market. Not impossible that we see rates <2%, but mortgages are incredibly hard to qualify for. Hopefully, the secondary markets stay strong, even if it's because the Fed is propping them up.

Jaysen Medhurst · Answer

This story is only 2 months old, @Michael Belmore. A lot has happened in 8 weeks...

Jaysen Medhurst · Answer

Negative rates from the Fed are possible, @Michael Belmore. I work at a big bank and we studied it and put plans in place. I don't think (and my opinion should be taken with an enormous grain of salt) negative rates will happen unless this whole thing really spins out of control. There's an institutional bias against negative rates. The Fed is "small-c conservative" and that would be a very big step.

Remember the Fed doesn't set mortgage rates. Influence overall debt markets? Yes, control? No.

Michael Belmore · Answer

@Alex Olson Thanks for the reply. Apart from actually purchasing the property I'm thinking in regards to refinancing. Like you say maybe 6 months from now things will get lower.

Alex Olson · Answer

@Michael Belmore Hard to say for sure. One thing that I think is true is that rates will be lower 6 months from now lower than they were 6 months ago but may not be much different than they are now. Taking advantage of the low rates is always a good idea. I would say that it is icing on the cake for buyers at this point. If it gets even lower, then that is even better. A good deal is a good deal no matter what the rate - just make sure you run your calcs right.

Michael Belmore · Answer

@Jaysen Medhurst Thats for sure!

Michael Belmore · Answer

@Jaysen Medhurst Thank for the input, Its interesting to hear banks are actually looking at what if scenarios.

Michael Belmore · Answer

@josephcacciapaglia Thanks for your reply. I agree the gap is defiantly getting smaller if fundamentals stay the same. If the government fixates on propping up property value will a 0% fed rate be the new norm? Thats what Trump is pushing hard for.

Where will rates be in 6 months?

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