We may be WRONG about interest rates again.
We might be wrong about mortgage interest rates again. We, as a real estate community, have been discussing the possibility of rising rates since 2012, just after the most recent bottom of the housing market (end of 2011). Since the recession, the Federal Reserve has been buying back “bonds” (mostly mortgage bonds), increasing the prices of the bonds and therefore driving down yields. When yields go down, mortgage rates go down (roughly >> there is much more to it than that). As a result, mortgages rates have been severely depressed.
Now, the Federal Reserve is raising the discount rate and will likely be putting us on a schedule of rising rates. Yet, there is a chance mortgage rates may stay low.
Why? If investors deem the stock market to be over-inflated, they may likely flee to bonds (considered a more stable, long-term investment). As a result, prices of bonds may go up (more people buying / more demand), and mortgage rates could actually stay low WHILE the discount rate goes up. This means lenders suffer as their margin is squeezed and home buyers may not take on all of the burden of a rising discount rate (as ordinarily expected).
Let’s stay tuned and see how this crazy real estate market develops. Consult your realtor for more guidance.
Post written by Realtor Kevin Paffrath at “Meet Kevin“, the amazing real estate agent and broker serving Ventura County, including Camarillo, Ventura, Oxnard, & beyond. Writing for home buyers, sellers, investors, and anyone with an interest in real estate. Kevin thanks you for reading.