Please vote in this poll using the sidebar.
Where will 30-year mortgage interest rates be a year from now?
- <4% (8%, 22 Votes)
- 4% - <5% (27%, 69 Votes)
- 5% - <6% (36%, 94 Votes)
- 6% - <7% (14%, 36 Votes)
- 7% - <8% (3%, 8 Votes)
- 8% + (12%, 11 Votes)
Total Voters: 259
This poll will be active and displayed on the sidebar through 04.04.2009.
Ben » Mar 29, 2009 at 11:48 am
You work fast Tim!
It will be interesting to see what comes out of all this.
Best,
Ben
Scotsman » Mar 29, 2009 at 12:24 pm
This is a tough one. Almost 40 votes and no comments attests to that!
I sure don’t know. I voted for 6-7% because I see government borrowing costs going up and private investors seeking a bit more premium to cover higher risk.
Normally, during a downturn we would expect rates to drop due to both a lack of demand and government efforts to entice buyers to jump in. I’m not sure though that the government will have that option in a year. But, even if funding is more expensive, will the government subsidize mortgage rates to spur demand? Can they afford it? What happens as tax revenues continue to fall and deficits blow way beyond even today’s expectations? I’d rather sit on the fence and watch/wait than commit at this time.
One Eyed Man » Mar 29, 2009 at 3:07 pm
I agree with everything Scotsman @ 2 said except his conclusion. I think that 6% or a little over is about what the market would do if the government didn’t act to keep mortgage rates down. I think the government will continue to act to keep rates down for the purpose of slowing the deterioration of real estate prices and the related deterioration of bank capital. My estimate (meaning guess) for the 30 yr mtg rate one year from now is 5%. I didn’t vote because I’m torn between above or below 5%. I think they will continue to push rates under 5% but will have limited success. To keep banks profitable they will try to keep the yield curve from flattening by, among other things, continuing to keep fed funds and the discount rate near zero. I predict that in TARP III (coming to your neighborhood mega bank soon) Treasury will pay banks interest on the short term TARP money they borrow. Yes, I’m joking, but the crazy thing is that in some indirect sense it might happen. For example, maybe they will make taking (or not paying back) TARP money a condition to a seller’s participation in the Toxic Asset auctions.
Sniglet » Mar 29, 2009 at 4:18 pm
If I had to guess I would choose the less than 4% option. However, I am not nearly as confident in making a prediction on mortgage rates as I am further price declines and tightening credit.
Regardless of what happens to interest rates, I expect there will be tighter qualifications on non-performing (and possibly even performing ones) this time next year. Even the GSEs will be forced to tighten standards if defaults keep increasing.
Further, I strongly believe that house prices will have continued to spiral downwards in a year’s time. We may see some kind of bump in the spring or summer, but come the fall and winter I think things will start to look ugly again.
As far as interest rates go, I can easily imagine a scenario where a deepening global economic contraction leads to an even greater rush for US treasuries, in hopes of safety. However, I can also envision a case where further de-leveraging forces holders of US treasuries to sell in order to raise actual cash. This would be bullish for the dollar itself, but negative for T-bills (i.e. leading to higher interest rates). Regardless, I think T-bills will outperform most other asset classes in the next year (e.g. precious metals, stocks, real-estate, etc).
Keep in mind that I expect a MAJOR rally (e.g. the Dow could rise to the 10,000 level) in all asset classes to last through the summer, which will make it look like inflation has re-appeared and that the depression is over. Unfortunately, all these gains will be retraced late in the year and early 2010.
Scotsman » Mar 30, 2009 at 12:35 am
RE: Sniglet @ 4 –
Some great points. I’m not completely confident treasuries will remain the ultimate safe haven. Let’s face it, the return is near zero and there could be potential access issues. Yes, the government can default- anything is possible. Why not just accumulate cash over time? Also, there are some good corporate and municipal bonds out there- not everybody has been mis-managed or over extended. And they offer a positive return!
People are finding other things to do with their cash- pay down debt (a guaranteed return and it improves future flexability), fix the house/car, stockpile goods, etc. I bought an extra heating oil tank and filled everything when oil was under $38.00/barrel. Folks will get tired of the zero return once they realize that life will go on and start looking at other options. De-leveraging and real opportunities will pull money from treasuries forcing rates up. Is the treasury market in equilibrium now? If so, another $2-3 trillion will surely unbalance it and force the government to offer higher rates.
While I used to think this bear market rally could hit 10,000 on the dow, that option is off the table. The negatives can’t be overlooked that easily, and people aren’t buying into the certainty of the government’s plans to fix it all.
Eighty-one votes and five comments? Come on guys, stick your neck out and explain that vote!
softwarengineer » Mar 30, 2009 at 9:18 am
I’M WITH SCOTSMAN
I didn’t vote, because Tim didn’t have a 10+% possible outcome button. The Chinese are tapped out and don’t trust America’s credit rating anymore. What happens if they pull their trillion out of our debt pool all at once?
The safest place to put money is three month government T-Bills; right now they’re like 0.2%….you can’t get home mortgage lower if the safe investment base money is about 0% [and besides, who's going to invest in T-Bills at 0.2%, when drop safes are about the same investment interest without the closed bank door risk?].
Nope, interest rates have totally bottomed out at current rates, the Greespan interest rate dial is pegged out at 0%.
Kary L. Krismer » Mar 30, 2009 at 9:32 am
I didn’t vote because their isn’t an option for “Either under 4 or over 10.” ;-)
Jillayne » Mar 30, 2009 at 9:53 am
Many factors can drive rates up as I’ve read in the comments above. I’d like to add one more. Competition. Right now, mortgage brokers are being driven into the ground. That leaves non-depository mortgage bankers; lenders who can fund their own loans but do so on credit lines, and then the big banks. I just read an article on Housing Wire that suggests Fannie and Freddie might be used to allow these non-depository mortgage bankers (I like to call them by how they’re licensed: Consumer Loan Companies) the ability to use F&F to fund their loans.
IF this does come to pass, I think rates will stay low. If the consumer loan companies continue to have problems with their warehouse lines, then the lack of competition may drive rates higher.
http://www.housingwire.com/2009/03/30/a-new-role-for-fannie-freddie/
Tim McB » Mar 31, 2009 at 8:06 am
I voted for 5%-6% because I was equally split between rates at under 4% or over 10% as Kary stated. We’re in unstable times and I think software engineer makes a good point about China’s stomach (or lack thereof) of our t-bills. Perhaps they’ll get sick of buying our debt. At some point there has to be a breaking point. These are interesting times…
Hold up a second... » Mar 31, 2009 at 10:33 am
Does anyone here realize the massive drop in affordability when rates go from 4.85% to 7%? I was just doing the math yesterday… if I remember correctly, it requires something like a 20% drop in the mortgage loan amount.
Anyone with a brain knows 4.85% can’t last forever… good luck with your exit strategies once we’ve moved back over 6.5%.