Sunday, January 3, 2010

Interest Rate Forecast: Fixed Jumbo Loan Rates Higher in 2010.

2010 Predictions are found everywhere on every facet of life. I will focus on just one that interests me and our readers. Where will rates go this year and why?

In short mortgage interest rates will begin to rise – We’ve seen a ridiculous run of low interest rates over the last decade.  This chart on the history of mortgage rates tells a very interesting story(click charts to enlarge):

Consider for a moment that we were supposedly days away from a complete meltdown of the global financial markets and the after effects being soup lines on main st.  That was Sept 2008.  What has followed, from this deep economic crisis, is another historic run of continued low interest rates.  For a more full picture of what rates have looked like over the last 17 years, here’s another chart:

As you can see, we are currently lingering in a zone well below the long term average.  Looking at the 4 year chart for the 10-year Treasury shows another interesting bit of data:

After the financial meltdown and subsequent loss of trust in the US markets, interest rates have continued to stay low.  Why is this?  The government continues to allow banks to trade the spread on the TARP money and Treasuries.  When that game is over, and it will be, interest rates will have to climb in order for the much needed capital from international sources to soak up the Treasuries.  How much debt?  With the current strategies employed by our current government, with trillions at stake, we have a lot of debt which need to be floated to cover the costs of the policies.  Who’s going to buy the Treasuries with rates this low?  No one.  In order to move the product, the price is going to have to change, which means interest rates are going to have to go up.  Jumbo mortgage rates will follow suit and especially all fixed jumbo loan programs.

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