I do have a crystal ball on my desk, a wonderfully sparkly novelty item I picked out of a catalogue years ago. Unfortunately it doesn’t help me during times like this when everyone wants to know WHAT ARE RATES GOING TO DO? Instead, I consult the morning paper and the evening news and stay abreast of world financial markets real time via the Internet.
Below is a summary—based on the best information available—of where rates are likely to go in 2011:
First and foremost, home loan rates are still at historic lows. Because home loan rates are inversely tied to bond prices, as bonds have rallied, mortgage rates have sunk.
Having said that, bonds have been taking a beating lately, leaving us all to ponder whether home loan rates will go back down. Indications are that those unbelievably low rates may be behind us.
Looking at the big picture, there are only a few things that would bring back the lows that we saw in early November:
• The tax cut package doesn’t get passed. This would be bad news for the economy and the stock market, but it would help interest rates.
• The Fed’s recent round of Quantitative Easing falls on its face and doesn’t meet its mission of creating inflation, boosting stock prices, lowering unemployment and creating consumer demand. This is a long shot, but if it happened, bond prices could make some gains as the threat of deflation reemerges.
• If the financial problems in Europe worsen significantly. This would drive investors into the safe haven of the U.S. bond market, moderately helping bond prices.
Realistically, chances are low that any or all of those events would happen. In the end, rates may see some fleeting improvements, but will likely continue to creep up over time. For now, home loans are still at their lowest rates in decades. Bank turn-around times have eased and even if we have seen the trough, there’s still plenty of time to act.
Is home-ownership (or a lower mortgage payment) a possibility for you in 2011?