Mortgage Rates?
October 26, 2010 7:06 PM Subscribe
Mortgage Rate Question....What is the outlook for mortgage rates? Is there a reliable source for predecting where they will go?
Thinking of refinancing and wondering what will happen with rates over the next year. Have heard predictions they will go lower. Is there a way to pedict the future ratewise? Thanks
Thinking of refinancing and wondering what will happen with rates over the next year. Have heard predictions they will go lower. Is there a way to pedict the future ratewise? Thanks
Short answer yes with an if, long answer no with a but. Super short answer: No.
Look, the Fed rate hit a 60 year low this week. The mortgage bankers themselves seem to think this is about as low as they'll get. While even a few basis points difference on a 30 year loan can be significant, the magnitude pales in comparison to the 1 or 2 or more % swings the rate can go through over the course of months. Given that we're currently at historic lows, any such swings would likely be to the upside.
On the other hand, the market overall is for shite --- the vast majority of loans actually being processed right now are refis, not purchases --- and there's no particular reason to think it will get astonishingly better over the next several months at least. As more and more people refi, you're drawing from a smaller pool of potentials, and as underwriting standards are very tight and unlikely to loosen soon, that should help keep rates low.
So it really depends far more on your particular situation --- how much money you'd be saving over the course of the loan, what you credit is like, and whether you can qualify. From what I hear from brokers in my area they're turning down 40 percent of people before they even get to the application stage because they can tell from their financials they won't qualify under the new strict rules, and they lose another 10 percent or so post-application because the property doesn't appraise out.
My area is not your area; things might be a lot better or worse where you are. What I do know is this --- earlier this year when the Fed stopped buying Mortgage Backed Securities, everyone I talked to in the industry expected the rates to move up; they did for a while, but not by much, and now they're back down again. Nobody really knows. If the loan you've got now is a couple percent higher than what you could qualify for, then it'd probably be worth it to do. I'd say you'd have a lot more to worry about trying to qualify.
posted by Diablevert at 7:27 PM on October 26, 2010
Look, the Fed rate hit a 60 year low this week. The mortgage bankers themselves seem to think this is about as low as they'll get. While even a few basis points difference on a 30 year loan can be significant, the magnitude pales in comparison to the 1 or 2 or more % swings the rate can go through over the course of months. Given that we're currently at historic lows, any such swings would likely be to the upside.
On the other hand, the market overall is for shite --- the vast majority of loans actually being processed right now are refis, not purchases --- and there's no particular reason to think it will get astonishingly better over the next several months at least. As more and more people refi, you're drawing from a smaller pool of potentials, and as underwriting standards are very tight and unlikely to loosen soon, that should help keep rates low.
So it really depends far more on your particular situation --- how much money you'd be saving over the course of the loan, what you credit is like, and whether you can qualify. From what I hear from brokers in my area they're turning down 40 percent of people before they even get to the application stage because they can tell from their financials they won't qualify under the new strict rules, and they lose another 10 percent or so post-application because the property doesn't appraise out.
My area is not your area; things might be a lot better or worse where you are. What I do know is this --- earlier this year when the Fed stopped buying Mortgage Backed Securities, everyone I talked to in the industry expected the rates to move up; they did for a while, but not by much, and now they're back down again. Nobody really knows. If the loan you've got now is a couple percent higher than what you could qualify for, then it'd probably be worth it to do. I'd say you'd have a lot more to worry about trying to qualify.
posted by Diablevert at 7:27 PM on October 26, 2010
There is an old econ joke that says that the market will do one of three things-go up, down, or stay the same. The same is true of mortgage rates. I'm not being snarky-trying to time mortgage rates is like trying to time the stock market. You can't do it and will make yourself nuts trying. As mentioned above, rates are at historic lows. Let that be enough. Find out what it will cost you to refi, what rate you can get right now and how much that will save you. If it makes sense, do it. If not, don't. Accept that you'll have to run these calculations periodically and possibly refi again in the future, and don't look back.
posted by supercapitalist at 7:30 PM on October 26, 2010
posted by supercapitalist at 7:30 PM on October 26, 2010
No. If there is a way to predict with any certainty higher than random-chance, the persons who know will take action to benefit from it; and their actions will cause the market to move to nullify the advantage of such knowledge. For example, if you know that interest rate will rise tomorrow, and you are allow to act on such knowledge, then the logical thing to do is to borrow money today. But your action to borrow more will cause the rate to rise today, instead of tomorrow, thus make your prediction false.
One exception is the Federal Reserve Board. They know where the interest rate will be because they have power to influence the market on the macro scale. Of course, they are not allowed to act or even disseminate that information for their own benefit.
My advice: don't gamble with things you can't control: pay others to take on the risk for you. This is what you do when you buy insurance, pay extra for 30-year mortgage... etc. Pay the professional risk-managers with lots of money to take on the risks that you can't control; it's worth the money and mental health. Of course, the reverse is if it's a risk you can control, you should pay yourself to manage that risk; e.g. collision damage is within your control, so don't buy collision insurance.
posted by curiousZ at 7:31 PM on October 26, 2010
One exception is the Federal Reserve Board. They know where the interest rate will be because they have power to influence the market on the macro scale. Of course, they are not allowed to act or even disseminate that information for their own benefit.
My advice: don't gamble with things you can't control: pay others to take on the risk for you. This is what you do when you buy insurance, pay extra for 30-year mortgage... etc. Pay the professional risk-managers with lots of money to take on the risks that you can't control; it's worth the money and mental health. Of course, the reverse is if it's a risk you can control, you should pay yourself to manage that risk; e.g. collision damage is within your control, so don't buy collision insurance.
posted by curiousZ at 7:31 PM on October 26, 2010
No, there is no way to determine the direction of mortgage interest rates, because the rate you are charged for a mortgage is a function both of you your credit rating and downpayment, and the actions of the Fed to manipulate the short-term portion of the yield curve.
You can't control that last element, unfortunately.
posted by dfriedman at 8:07 PM on October 26, 2010
You can't control that last element, unfortunately.
posted by dfriedman at 8:07 PM on October 26, 2010
As a rational actor, I concur with everyone above in the thread--if anyone had this information, they'd be rich. Anecdotally, I've heard from my mortgage broker that the "word" is that rates will go down a bit more. He has a one in three chance of being right (see supercapitalist, above), but I'd like to believe him. I recognize that this is not in fact, rational.
Do I contradict myself? Very well, then I contradict myself, I am large, I contain multitudes.
posted by Admiral Haddock at 8:24 PM on October 26, 2010
Do I contradict myself? Very well, then I contradict myself, I am large, I contain multitudes.
posted by Admiral Haddock at 8:24 PM on October 26, 2010
Two points, not really new to the thread: All things considered, expect regression toward the mean. Rates are historically low. They have much more room upside than downside. I don't see the point in hesitating because you expect they might get lower, because the amount lower they might get isn't that much compared to how much they've dropped since historic peaks. Shaving your rate from 4.29% (last week) to 4.20% (this week) is worth a substantial amount over the life of the mortgage, but define substantial as on the order of $5000 (for a $250K mortgage). You can save much more than that just by doing 13 payments a year (on the order of $30,000).
But yes, what Diablevert said about worrying about qualifying. Compared to a couple of years back, when they actually had NINJA loans, now (from reports within my own family) they go over everything with a fine-toothed comb that would be the envy of an IRS auditor. Do you know how many hairs you have on your ass? After going through this, your bank will.
posted by dhartung at 10:10 PM on October 26, 2010
But yes, what Diablevert said about worrying about qualifying. Compared to a couple of years back, when they actually had NINJA loans, now (from reports within my own family) they go over everything with a fine-toothed comb that would be the envy of an IRS auditor. Do you know how many hairs you have on your ass? After going through this, your bank will.
posted by dhartung at 10:10 PM on October 26, 2010
Predict? Usually, yes. There's a longstanding theory that futures markets function as prediction markets. You should be able to find a few exchange traded securities that track interest rates, and look at their futures for a best market guess at the future, with epic caveats:
1. Futures can be thinly traded; there might only be a few robot formula traders making market in the security you choose, so be careful.
2. They only reflect the knowledge of traders. We generally expect they have better than average predicting power, but there's a lot about the future that can't be knowable.
3. The treasury yield curve gives you another datapoint about expected future interest rates, but is basically manipulated by the fed's market operations.
4. Interest rates are affected by a number of factors, many of which we only know two or three months later, like inflation.
5. The current interest rate regime is crazy low. Like black swan low. Anything standard models tell us about the future should be taken with a grain of salt. And if the only people selling futures are using black-scholes as a pricing guideline, they're really not adding much information to the market.
6. We generally assume the lower bound is zero percent interest rate. Since the prime rate is closely associated with the fed funds rate, and the fed funds rate is damn near zero, it seems to me more likely that the rate will double than halve. And waay more likely that the rate will go up 50 than down ;)
posted by pwnguin at 9:45 AM on October 27, 2010
1. Futures can be thinly traded; there might only be a few robot formula traders making market in the security you choose, so be careful.
2. They only reflect the knowledge of traders. We generally expect they have better than average predicting power, but there's a lot about the future that can't be knowable.
3. The treasury yield curve gives you another datapoint about expected future interest rates, but is basically manipulated by the fed's market operations.
4. Interest rates are affected by a number of factors, many of which we only know two or three months later, like inflation.
5. The current interest rate regime is crazy low. Like black swan low. Anything standard models tell us about the future should be taken with a grain of salt. And if the only people selling futures are using black-scholes as a pricing guideline, they're really not adding much information to the market.
6. We generally assume the lower bound is zero percent interest rate. Since the prime rate is closely associated with the fed funds rate, and the fed funds rate is damn near zero, it seems to me more likely that the rate will double than halve. And waay more likely that the rate will go up 50 than down ;)
posted by pwnguin at 9:45 AM on October 27, 2010
The betting is that the RBA will put rates up another .25 points on Tuesday. If not, then in December. But that is here. If you are in UK or USA, things are quite different. USA appears to have a very sluggish economy, and may require further fiscal and/or monetary stimulation. UK will be lucky to avoid a similar situation following the recent budget.
Your question only makes sense if you are fixing. Fixing for any reason other than certainty is, in my very humple opinion (and my experience of 40+ years of mortgages), a mug's game. You are betting you can outsmart the banks, and that does not happen very much.
Rather than fix, I suggest you go variable, and use the savings to buy lottery tickets - much better odds. If gambling with the savings is not your thing, just send them to me, I can put the money to good use ;-)
posted by GeeEmm at 5:33 PM on October 27, 2010
Your question only makes sense if you are fixing. Fixing for any reason other than certainty is, in my very humple opinion (and my experience of 40+ years of mortgages), a mug's game. You are betting you can outsmart the banks, and that does not happen very much.
Rather than fix, I suggest you go variable, and use the savings to buy lottery tickets - much better odds. If gambling with the savings is not your thing, just send them to me, I can put the money to good use ;-)
posted by GeeEmm at 5:33 PM on October 27, 2010
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As a historical matter, rates are insanely low. If you expect things to generally revert to the historical mean, then rates will have to go up. But nobody knows how long that will take.
As an anecdote, the last two times I have gone through the mortgage process (in 2003 and 2009), I have opted for a fixed 30 year loan on the theory that rates were absurdly low and would have to go up. Each time, rates have gone lower still and my 30 year mortgages were wasteful as compared to an adjustable loan.
posted by Mid at 7:16 PM on October 26, 2010