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Don't Be Fooled: Interest Rates May Fall Yet Again.
Only a fool (or an economist for that matter) would try to predict where interest rates are headed. And only a complete fool writing a monthly column would try to do the same. After all, a lot can change in a month: Unexpected financial data or some big "surprise" from a large company can blow a hole in the market faster than you can say "Freddie Mac."
So, I'm not going to let that stop me. I'm going to go out on a limb here and say, for the record, that mortgage rates could fall in the months ahead - that would be October, November and December of 2003.
How do I know this is going to happen? I don't, not really, but two things point in the direction of lower yields on the 10-year Treasury (which mortgages are pegged to): an overvalued stock market and crappy employment numbers.
The employment market is soft. Even though the economy is growing, it's not adding new jobs. That's bad news for President Bush and it's even worse news for mortgage lenders who hope to make up for lost refi volume by tapping a strong "purchase money" market. If people don't have jobs, they aren't going to buy homes.
If the job market doesn't improve, chances are that inflation will continue to be a non-issue. No inflation means no rate hikes by the Federal Reserve. Of course, the Fed doesn't control the yield on the 10-year Treasury. Market traders determine that.
As any mortgage banker can tell you, mortgage rates - as well as the yield on the 10-year - rose rapidly this past summer, but come September the rates have fallen again. As I write this column, the yield is just under 4.2%. Thirty- year FRMs are at 6.16%, 15-year's at 5.46% and one-year ARMs are fetching 3.87%. (Rate data courtesy of Raymond James & Associates.)
Refis have slowed considerably since June/July's highs and mortgage bankers with the likes of Bank of America, Countrywide Home Loans, DiTech, E*Trade Mortgage and a host of others have already moved to cut their "temporary" workers. But that was when the yield on the 10-year was north of 4.6%.
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