When deciding on a home loan this is always the big question: “Will rates go up or go down?”
Nobody is going to argue that rates are too expensive right now. You might be agonizing over .25% changes in your rate quotes but in 3 or 5 years you will probably be impressing your friends at parties when you brag about your “great ~5% home loan rate.”
Less is More
We just saw a blip in the loan rates last week. If you have the stomach to gamble and you decide to wait to lock your rate in you are hoping rates will drop back down. It is an interesting position to be in, and it seems that there isn’t any solid advise that can predict what will happen to rates.
The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.
The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low.
What would Bernanke do?
So the big unknown is how Bernanke and the Fed will handle the markets. How long will they continue to buy in order to keep rates low? There are thoughts that the Fed is slowing their purchases now that the economy is looking healthier.