Any guess where rates are heading???

Question

I keep reading all this gibberish about the fed tapering bond purchases, treasury this, stocks that, blah blah blah...

I could care less about stocks, bonds, treasuries, etc...  My concern is what effect all this will have on interest rates in 4-6 months after my latest 2 sfr properties meet their seasoning requirements??

I know this is all just pure guesswork, but I'm curious where my fellow BP'ers feel the rates will be in the near future.

Will they continue the sharp rise, plateau, bounce back down, etc.

Billy Rogers · Answer

I've got a masters degree in finance and I agree with Ned.

Bryan Hancock · Answer

Well that pretty much sums it up Ned!  Great response.

Interest rates are COMPLETELY unpredictable.  Anyone that tells you they can predict them is either a liar, a fool, or both.

Ned Carey · Answer

Short run no one knows.  Anyone who thinks they know is kidding themselves.

Long run anyone who has any financial intelligence knows rates are going up. Anyone who disagrees is kidding themselves.

My attitude is who cares? Even if rates go up 1-2% in the next year Rates are still DIRT CHEAP!

Our rates today are historically low. I mean really low. They are artificially held low. This cannot go on forever, in the long run the fundamentals of the market will win out and force rates up.   Good luck - Ned

Clay Huber · Answer

As others have said, there is simply no way to know 'where' interest rates will be.

For me personally (I do have a minor in economics, but I by no means am proclaiming to be an economist), I think the key metric to watch is the employment rate. In my opinion, this will have an inverse relationship with interest rates.

The lower the employment rate goes, the higher interest rates are going to go. In my mind, it only makes sense that the Fed is going to feel better and better about letting interest rates rise as job health is restored.

I know many think that interest rates will rise based solely on the fact of the government printing money; however, that theory has been getting tossed around since the housing crash, and there has been very little inflation.

This debate could go round and round, but like I said, simply my opinion and $.02 :-)

Bill Gulley · Answer

Well, I went to high school and I agree with Ned as well!

But, being older gives me the right to play along and make a wild guess. 30 yr fixed 95% LTV in 12/13 at 5.25%. 1/14 at 6.50% and 9.0% at the next presidential election. We will see won't we, I have no crystal ball!

But here is my thinking that will be more accurate. Rates are going up. For those of you jumping on cheap rates at 5 and 7 year balloons with the banks, beware! Your next rate adjustment could be at a qualifying rate of 10/11% (not the note rate so much but at a higher qualifying rate going into an adjustable rate). I wouldn't doubt that note rates could be 10% in 5 or 6 years, could be higher!

So, while you run around buying up all you can with cheap rental rates on money, remember you need the cash flow later on to qualify at much higher rates. What I have seen time and time again is an investor who buys, writes off expenses to lower taxes and paints themselves in a corner years later, not qualifying and forced to sell.

Know too, that other investors usually know when another investor is forced to sell and if it's not a steal of a deal, they will wait to go to the courthouse steps! So, whatever you buy, make sure it can be retailed out, not just some investor type property.

Rates will go up, keep your refinancing obligations in mind as well as your income, watch those debt ratios and  retain equity so that you are not overly leveraged, otherwise, have a great exit plan. :)

Jimmy Hong · Answer

I got an art degree and I agree with Ned! (just kidding, don't have an art degree, but still agree with Ned)

James Sinclair · Answer

Rates this low are a historic event so they will not stay down in this range much longer.  Savers are being hit hard by the Fed's efforts to recapitalize the banks and boost the economy.  Six months may see another 1/2 point higher but 3 years should put rates back in the 6% range.

Ed L. · Answer

Looks like rates spiked and have started to settled downward again!  Just hope they hold for 4 more months so I can finish seasoning on a couple properties.

John Thedford · Answer

If you plan well and buy right rates may not have a big effect on your portfolio. They are historically low at this time and I believe there is no better time to borrow especially if you can tie them up for long term. What better place to put money than RE? Banks don't pay anything. The stock market is a gamble. RE, when researched and planned properly probably gives you the best chance at success. Who wants to play monopoly with fake money when you can do it with real estate and real money---all on the bank's money:)

Albert Hasson · Answer

Ditto what Ned said!

Any guess where rates are heading???

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