Interest Rates, where are they going?

Question

If anyone saw @Dave Meyer IG post the other day, you can guess rates are going to rise to low - mid 7% (Some are already there). I know no one has a crystal ball to tell the future, but I am curious on everyone's thoughts about where rates will be at to end 2023, July 2024 and end of 2024 along with why you think that?! At point do you think, if ever we will see around 5% again?

Benjamin Aaker · Answer

Inflation rate for June was down to 2.97%. This will give the FED a lot of confidence that their aggressive rate strategy is working. Even continued decreases in the inflation rate won't cause the FED to relent on rates, in my opinion. The jobs market is still up and we should be looking to unemployment as our indicator right now. Millions of homeowners bought in ridiculously-low interest rates we had during the pandemic. They aren't moving. That decreases demand and causes the bubble we are in where sale prices are high despite high interest rates. These buyers are patting themselves on the back with their low rates, but instead of getting low monthly mortgages, they just bought bigger houses. They have low rates, but high monthly payments. The only thing keeping them there is their jobs. Unemployment is 3.6% now. When that starts to rise, we will see these folks selling their houses.I don't see interest rates decreasing until we see unemployment tick up. And I'm not seeing any signs of this happening right now. Make sure your investment plans allow for long-term high rate mortgages.

Chris Seveney · Answer

@Bobby PaquetteThe fed publishes where they think they will be each quarter, many believe rates will go back down to historical norms of 5%ish percent to 6 percentDays of 2-3% are very unlikely unless of a major depression and government goes back to QE which is not currently being suggested due to the amount of money in the system

Bobby Paquette · Answer

I agree with the 2 bumps this year as well

Erik Applegate · Answer

What do you all think lower rates mean for home prices? I saw an article today predicting 5.9% interest rates in 1.5-2 years and a -2.2% to prices, but I’ve heard David Green say on some seeing green episodes that he predicts lower rates would lead to increased prices. I supposed I’d rather pay for a higher home price than just pure interest.

Konstantin Ginzburg · Answer

Like you said, no one has a crystal ball so this is a very hard item to predict. I think so much will depend on the overall economy and what is the political hot topic in the coming years. Although the FED and federal government are meant to be run as two separate entities, one does have unofficial influence over the other. For the year prior to the interest rate increases, the hot topic shifted from Covid to inflation and we saw the outcome of aggressive interest rate hikes that were used to tame inflation. This was able to happen since the job market still showed strong enough growth to take the high interest rates and still have a "soft landing". However, in the same way that when the hot topic of the day shifted from covid to inflation; covid was relatively forgotten about; I think that as inflation continues to approach more acceptable levels in the coming months; the inflation of the previous two years will quickly be cast aside from other issues. I believe, that the next pressing issue will be hosing affordability, since this is already beginning to be seen on the news frequently. Once this occurs, I think there will be more pressure on lowering interest rates in order to help with this matter. I think the probability of this happening increases as the housing price corrections that many were hoping for; doesn't occur. What occurs with housing prices is also hard to predict, but I do not think there will be a large correction in pricing over the coming months since the market supply is still incredible low and I don't see any factors that would lead to a sudden rush of housing to the market to the level that will put enough downward pressuring on housing prices to lead to a large price correction. At least, not on a national level.

Bobby Paquette · Answer

When do you think they will go back to 5-6% ?

Bobby Paquette · Answer

Mid 5% in a couple years, I am curious what is causing them to think that

John Morgan · Answer

@Bobby PaquetteIt’ll be around what it’s at now for another year or two unless this hot job market cools off. I don’t see much of a recession coming, so I think we’re stuck with these current rates for awhile. And I’m guessing the fed will do a couple .25% raises by year end. Definitely one in late July and maybe another this fall.

Michael Paling · Answer

My lender seems to think that we're going to see mid 5's in a couple years, but I like to operate with a mindset of "I don't care where they'll be later. Where are they today?". If I do an ARM or balloon loan, then I'd just plan for rates to go ridiculously high (12-13%) as a worst case scenario to see if the deal would still make sense.