| | March 5th
Many people, including myself, are often perplexed with what is currently happening in the market. For a few months now, there has been speculation that interest rates might fall into the mid-four per cent range. Well that did happen a few weeks ago, but it only lasted for literally less than a few hours.
The market immediately reacted with a vengence, and lenders almost immediately became overloaded with requests, loan locks, and loan submissions. I can tell you first hand that the party quickly evaporated. Don't get me wrong, we still have great rates, but for many the thought of rates in the mid- four percent range have left them wondering.
What most people need to know is some of the following information. With the government bailout in full force, the mortgage market is competing with Treasuries. Next week, the Treasury plans to issue more Treasury Bonds to cover bailout needs. This action by the government competes with the mortgage back securities market. In order to attract investors to fund our government's need, normally they have to raise Treasury Rates and Yields. This means that it will also raise mortgage rates.
Now, I know with everything going on in with the economy, this sounds almost insane. Most people would think that with our economy as it is, rates should be lower. For the most part, you are right. Yet, with the reasoning above, rates are very likely to rise.
For those of you who are sitting on the fence as to whether you should refinance, I would suggest two things. First, remember the following: Bears make money, Bulls make money, but Pigs get slaughtered. What I am trying to politely say is that don't get too greedy and take a good thing for granted. We are experiencing historic lows for rates. Secondly, compute your saving to refinance vs. the cost to complete the refinance. Normally a rule of thumb is a 1% spread. So if you can lower your rate by 1% or very close to it, it might be prudent to do so.
Bernanke himself this week, stated that with the increased Treasury demands to fund the bailout, interest rates could eventually creep up to the 6% or 7% level soon. Based on market fundamentals and the market physique, his predictions could come true sooner than later.
I know that many of you may think of this as rediculous, but with the market in current flux and disarray, it is not far out of reach. Based upon market demands, competition from Treasuries could hurt our market more with higher mortgage rates.
With more than 38 years of ethical mortgage experience, if this has been helpful, please consider me for your next loan. Better yet, let your friends and co-workers know too.
Best Regards,
Wayne | |
