Bottomline: We will see Conventional 30-Year Fixed rates at 4.75% (APR 4.778%) and 5-Year Adjustable Rates around 3.75% (APR3.809%) sometime within the next 45 days for the most qualified borrowers.
At the time of this post, rates have beaten up badly over the last two days and are currently sitting at 5.125% (APR 5.154%) for 30-Year Fixed and 4.00% (APR 3.889%) for the 5-Year ARM.
There, I said it. Now…it’s a prediction. That means I might be wrong. But here’s my thought-process:
What’s happening in the next 45 days? The Fed is ending its MBS Purchase Program and will be one month away from ending the $8,000 First-Time Homebuyer Tax Credit (and $6,500 tax credit for other homebuyers). These two programs are important to the health of the U.S. Housing Market and are therefore important to the health of the overall Economy.
My focus is on the MBS Purchase Program. Conventional Wisdom is that mortgage rates will skyrocket starting on April 1st. I think the markets are smarter than that. That is to say that market participants are constantly gathering data and integrating that data into a trading strategy. Participants have known for quite some time that the Fed is ending its MBS Purchase Program. This event is already priced into the market!!!
There is also speculation that the Fed will extend the MBS Purchase Program past March 31st. This speculation is also priced into the market, but is likely to be a weak influence since the Fed itself insists that the Program is ending.
So …either the Fed will extend the MBS Purchase Program and we’ll all be delightfully surprised or they won’t.
If the Fed does extend, MBS prices will rally the moment they make that announcement and rates will go down dramatically.
If the Fed does NOT extend (the most likely outcome), my opinion is that the economic community is going to start to get very nervous about the Housing Sector and its ability to single-handedly create a double-dip recession. This concern, which will be building over the next 45 days, will cause money to flow into all bond types because of a “safe-haven” motivation. MBS prices will rise and mortgage rates will decrease.
There you have it. You hear it first (or maybe second or third). If you have an opinion on the subject, please leave a comment. I’d love to hear it.