Mortgage rate prediction - Spring 2012

I am not sure whether I should move and buy a different house either this spring or next spring and the best guess as far as how much the mortgage rate will change (i.e. increase) between this spring and next spring is one of my main considerations (let's assume that I will move and buy a different house and it's just the matter of the best timing to do this). I know this is very difficult to predict so I am just asking what you guys think.

My guess is that it won't increase by much because unfortunately unemployment rate will not decrease significantly and as the result the Federal Reserve will not increase Fed rate which in turn means that mortgage rate will not increase by much, if any. Maybe it will increase by at most .5% - .75%.

The real estate market around where I live, metro Washington DC area, has been doing pretty well if the house is priced right. The biggest unknown for me is if the federal budget is cut, the unemployment rate in this area may increase and as the result the real estate market will decrease.

What do you guys think?

ea_sport wrote: My guess is that it won't increase by much because unfortunately unemployment rate will not decrease significantly and as the result the Federal Reserve will not increase Fed rate which in turn means that mortgage rate will not increase by much, if any. Maybe it will increase by at most .5% - .75%.

That sounds about right to me, but who the heck knows for sure?

I'm simple. I always look at the rates on longer term loans compared to the shorter ones. They're set by people who obsess over this stuff full-time - so if you see the long term rates start to rise higher as the short term ones stay put, you know those people are predicting higher rates.

Someone mentioned the bond market is tied to mortgage interest rates.

TRoglodyte wrote: Someone mentioned the bond market is tied to mortgage interest rates.

No, other way around - bond market and longer term swap rates influence the mortgage rates. Basically whoever is giving you a mortgage either has to sell on the debt in some form or finance a large portion of it themselves so they'll look at the long term bond market, interest rate swaps and other long term instruments to determine the rate.

The Mortgage Bankers Association forecast, for whatever it is worth.

I think your bigger driver is going to be home valuations, and not mortgage rates. As long as you can get approved for a decent rate, I would be opportunistic - move for the right property at the right purchase price.

I'd start at http://www.homepath.com...

Just been working on this exact same question for market commentary I do. What I've found is that we should reach 6% pretty quickly. Maybe as soon as the 4th quarter of this year. Don't think so? We've already hit 5.5% once this year.

Basically I've found that our rates should be at about 6% right now and would be except for the props given by the govt. and the Feds (and no the Feds are not a govt. entity even tho it sounds like they ought to be). eg. the banking prime at 0%.

Once all these props start going away then rates should rise rather quickly to the 6% (unless the real rate has moved even higher by that time.)

Rates have started rising slightly again but the National Association of Realtors predicts rates will stay generally the same for the next 2-3 months. Once we hit summer and the demand picks up then yes rates should rise. That is normal absent any other strangeness in the market.

But regardless of what rates do in most parts of the country you need to buy now, not later as prices will only be rising.

As homepath just mentioned home valuations might be a bigger issue than interest rates. And my home valuations I'm not talking about whether you live in an area that's appreciation in value or one that's depreciation I'm talking about all the issues in the appraisal world that have been going on for the past year and are due to get even tougher in the next few months.

TRoglodyte wrote: Someone mentioned the bond market is tied to mortgage interest rates.

Simplistic viewpoint:

The mortgage rates go opposite of what the bond market is doing. If the bonds are up the rates are down and vice versa.

Although they aren't tied directly lately the stock market has been stealing from the bond market. If the stock market is doing good then the money goes into the stocks instead of bonds.

carguy123 wrote: .......But regardless of what rates do in most parts of the country you need to buy now, not later as prices will only be rising....

Shouldn't the housing prices go down as the interest rates go up?

As interest rates go up it lessens the amount the someone can spend on a house, thus the prices should push down, right?

^Do you think people will sell there house for less than paid for it?

given that it's a voluntary move to sell and not forced by bankruptcy/job less/etc, before someone tries to point that out

aircooled wrote:

carguy123 wrote: .......But regardless of what rates do in most parts of the country you need to buy now, not later as prices will only be rising....

Shouldn't the housing prices go down as the interest rates go up? As interest rates go up it lessens the amount the someone can spend on a house, thus the prices should push down, right?

They kinda sorta tend to, but you're talking fairly large jumps, not .5% or so.

z31maniac wrote: ^Do you think people will sell there house for less than paid for it? *given that it's a voluntary move to sell and not forced by bankruptcy/job less/etc, before someone tries to point that out*

Well, people can hold their breath as long as they like, it still doesn't change the fact that buyers can only afford so much, and some of that is dictated by the mortgage rate (monthly payments).

aircooled wrote:

carguy123 wrote: .......But regardless of what rates do in most parts of the country you need to buy now, not later as prices will only be rising....

Shouldn't the housing prices go down as the interest rates go up? As interest rates go up it lessens the amount the someone can spend on a house, thus the prices should push down, right?

In the short term, yes…as interest rates go up, the amount people can afford to spend on a house goes down and since the inventory of homes is fixed, or at least changes very slowly over time, prices across the board, decline.

Now, what you’ve got to ask is “why are interest rates going up?”.

If it’s because the economy is heating up, in other words, more folks are working and they’re making higher wages, the same fixed inventory principle referenced above will kick in again but in the opposite direction…more money is spread out against an existing population of homes so their prices increase.

If it’s because we’re monetizing the debt (a polite way of describing the practice the government has of printing money that isn’t tied to anything of value to hide overspending) which causes inflation and ultimately forces up interest rates as they must be kept higher to provide incentive for investors to lend money. You once again see home prices increase as you’ve got more dollars (the real ones that are tied to value plus the fake ones the government printed) spread out against an existing population of homes.

Either way, higher interest rates cause short term property value decline followed by long term property value increase.

If we learned anything through this whole ordeal, it should have been that this type of thinking DOES NOT work.

You're trying to time the market, and basing today's decisions on the outcome of that timing a year and a half from now. Very bad idea.

While I am not wishing any ill, what would the answer to your question have been in Aug of 2008? Buy, buy, buy! Those folks lost, lost, lost.

I'm am not predicting a second collapse. I am saying you can't predict next year.

What if the Mayor of your fair city was killed in a drive-by shooting? What would THAT do to property values? Could something happen in the next year and a half that could impact your ability to borrow? Loose job? Major illness? Change in credit score processing? Identity theft? Terrorist attack? Schools declare bankruptcy?

You are asking the wrong question. It does not matter what the comparison between rates this spring and next is. That's like betting whether the turd will flop to the left or the right when it hits the ground.

The better question is, "Are the rates and prices good now, and are they in line with my long term plan and my budget?". Then commit to be content.

Mortgage rates are at a 50 year low. Why are you debating (+ -) a half a point?

ea_sport wrote: The real estate market around where I live, metro Washington DC area, has been doing pretty well if the house is priced right.

There has probably NEVER been a time or a place where this statement wasn't true.

I have a 6% loan. Sometimes I wish I had one of those new 5%, or even 4.75%. Then I remember what it was like paying on that old 12.5% loan I used to have.

But the truth is, the world has changed. Lending practices have changed in the 4 years since I got that 6%. Through no fault of my own, I could no longer qualify for a loan, so it really doesn't matter whether I want a new one or not.

Don't get me wrong. My mortgage payment is about 2-3 day's pay for me, so there is really nothing to complain about.

It's not the changing rates that will hurt you the most. It is the things you can't control.

I currently have a 4% loan!

I have to move.

z31maniac wrote: ^Do you think people will sell there house for less than paid for it? *given that it's a voluntary move to sell and not forced by bankruptcy/job less/etc, before someone tries to point that out*

i did.

everyone says if your job is secure this is a great time to supersize. it's also a great time to undersize. one year ago, i sold for about $50k less than I had in it, and about $30k less than i paid six years earlier. tack on another $19k in realty fees to that loss. then i bought a house 20% smaller for about 45% less money, and scored a retardedly low interest rate at the same time. bought a foreclosure, and paid about $90k less than the "sherrif's sale" price. bottom line is i now have a 15-year note that is $850 per month LESS THAN my 30-year note on the old house. over the full 23 years that i would've been paying on the old house, the savings is about $450k.

oh, and just to pile on a little more, my 15-year note with 20% down is at 3.625%. my credit score is 799 and my wife's is 795.

AC is cool!

And he just bid on my car! (Where is the dancing banana?)

SVreX wrote: AC is cool! And he just bid on my car! (Where is the dancing banana?)

that's what she said

carguy123 wrote: As homepath just mentioned home valuations might be a bigger issue than interest rates. And my home valuations I'm not talking about whether you live in an area that's appreciation in value or one that's depreciation I'm talking about all the issues in the appraisal world that have been going on for the past year and are due to get even tougher in the next few months.

This is also another thing that I am really worried about. Even if you can find a buyer for your home the lender may or may not approve the price agreed upon by the seller and the buyer. I heard that lenders nowadays can ask two to three different appraisals.

ea_sport the issue isn't the lenders may or may not approve the price it's that the appraisers may or may not appraise the house for the sales price.

Once upon a time in upstate NY a Bank and an Appraisal Management Company were found guilty of colluding to fix prices. What's an AMC? At that time they were basically a 3rd party company who kept lists of appraisers all over the country so that relo companies didn't have to learn each area to know who to call for an appraisal. Not long after the guilty verdict all appraisals were required to have an AMC to be the intermediary in all appraisal orders. HUH? How can that be? Andrew Cuomo

We were told the AMCs were added to the system in an effort to be fair and partial and keep the appraisers from feeling the pressures of realtors, sellers, buyers, and lenders. So the moral of this story is you want to be found guilty of colluding to fix pricing so you can get rewarded by being made the top fox in the hen house. Yup, sounds totally logical to me.

At first the rules did say a bank couldn't own an AMC, but that's changed so now we have bank owned AMCs which means they have mandated that the problem that caused all the issues is now the standard for all appraisals.

Want to contest an appraisal? The AMC can only ask the appraiser to relook at the new data. But the appraiser won't. Why? They can't afford to. Appraisal prices in our area went up from $350 to about $500 when the new system went into place, but the appraiser's share went down. The AMC is basically a company that sits in the middle and collects the majority of the money for simply keeping a list and calling appraisers. Many of the AMCs use a bid system for the appraisal. They will send out an email blast to the appraisers and offer them $90 for the $500 appraisal. The lowest bidder gets the appraisal. Typically the appraiser only gets about $125 - $150 for that $500 appraisal. They can't afford to go back and relook at data.

To contest an appraisal you must find the appraisal Flawed, the appraiser incompetent, or find they violated USPAP or other laws. If the appraisal comes in $10,000 low you probably can't find it flawed. I just had one come in that was $100,000 low. It took a 15 page rebuttal with over 40 pics to be able to prove incompetance. Did I mention that it took 4 weeks to do that? So everyone had to put their lives on hold for 4 extra weeks and no one knew where, when or if they'd be moving. The buyer's had to pay to rent a hotel room and pay storage fees.

A real plus to all this is that now all appraisers get work - no matter how bad they are.

That's the HVCC appraisal system that's in place today. And soon it's getting worse. The comment period for some even more restrictive additions expires April 1st.

Just curious, do any of you guys watch the news? Federal Reserve said they'd keep rates the same for the next two years.

poopshovel wrote: Just curious, do any of you guys watch the news? Federal Reserve said they'd keep rates the same for the next two years.

Just curious, do you ever look at the posted date? :)

I just sent the OP a PM because I didn't look at the date either.