Mortgage interest rates should remain stable this year
You may recognize in past stories that I note details not commonly identified in real estate columns to give insight into what to expect both in housing prices and in the cost of housing, which for most consumers is payment.
This article will attempt to forecast mortgage interest rates given some of the economic data present in today’s market. Just so everyone is clear, any forecast can make a published writer either a hero or zero based upon predictions coming true. So for this article I am forecasting interest rates based upon things present in today’s market and events that have already happened.
You may recall one of my first columns about the 10-year bond and how a change in the 10-year bond affects mortgage rates.
You may also remember that the lowest point was October 2010, and that today the 10-year bond is around 3.50, equating to 120 basis point increases since October 2010.
That resulted in about a 1% add-on to mortgage rates since October. The effect of this rate change not only raises mortgage rates but could control inflation to a minimum expectation of 1 to 2% annually.
This 1% change may have succeeded in controlling sectors outside of housing in other goods and services that has reduced the fear of higher inflation. However, after watching the bond movement over the past month, and listening to economic forecasting on the news and reading it on the Internet, it appears that the interest rates for now will remain about where they are with minor ups and downs but no major changes till 2012.
Therefore, the bond rate appears stable for 2011. But given some of the pressures from rising oil we may see temporary slowdowns in purchases purely because rising oil and gas prices are affecting disposable income.
I say temporary because it takes the consumer about four to five months to become adjusted to rising prices before they begin to feel their way back to comfortable spending. What does this have to do with interest rates?
Let me explain. If consumers are not spending on big-ticket items, and they are suffering from the shock of rising gas prices, the worst thing a government can do is allow interest rate increases that could slow a national housing recovery.
Therefore, as I said earlier in this article, I expect interest rates to remain somewhat stable throughout 2011 with moderate changes in the mortgage industry in 2012.
Given this overview, there exists another window of opportunity to negotiate the right deal and take advantage of the stable rates and low pricing in today’s market. In my opinion, consumers missed the bottom!
Yes, I will say this over and over — October 2010 was the lowest point with the best leverage. So given that this low point will not probably occur again soon, I would not put off purchasing a home, given that interest rates are stable and good deals can be made.
Always remember that in today’s mortgage offerings you can ask for buy-downs on the rates to acquire an interest equal to October 2010.
Mortgage rate buy-downs can range from $5,000 per ¼% reduction or $20,000 for 1%. But this takes some understanding of the offer process. Therefore, consult with a Realtor to identify the perfect process given your needs.
But don’t wait! Next week, I will discuss tax rates on short sales and foreclosures. There seems to be a misunderstood assessment on buying a property in auction or foreclosure. We will attempt to overcome that myth.
TOM IOVENITTI is the former president and chief operating officer of Coldwell Banker. He lives in Newport Beach.
