Expect low interest rates for ‘a very long time’

by Ryan Smith31 Oct 2013

Low interest rates are here to stay for the foreseeable future.

Average rates for fixed-rate mortgages hit their lowest levels since June this week as the Federal Reserve declined to taper their $85bn-per-month bond-purchase program – and Bryan McNee, vice president senior bond analyst for MBSAuthority.com, says originators will be seeing “very attractive” rates for some time to come.

“The market still widely believes that the Federal Reserve will be unable to begin tapering their massive bond purchases until at least June of 2014,” McNee told MBA. “That’s quite interesting, because keep in mind we have our latest budget ceiling in February where (Congress) is going to have to renegotiate again -- and the Fed will have to react to that.”

If Congress reaches a debt ceiling agreement that lasts a year or longer, McNee said, the Fed may begin to taper its bond purchases -- provided there’s a commensurate uptick in employment levels.

“Really, there’s no way to know until February,” he said. “Until then, mortgage-backed securities are operating at a very thin range. Better interest rates, over and above what we’re seeing right now, are remote. On the other hand, worse rates than what we’re seeing right now are remote too.

“There’s no new catalyst to create better pricing -- and I’m not sure better pricing would be good for the economy anyway,” McNee said. “When FHA rates are in the upper threes and lower fours, I don’t think they need to be lower to spur housing. What we need to spur housing is stable employment. … When everybody has a job, they buy houses. When they don’t, they don’t.”

Ultimately, McNee said, the best way to boost the market would be for Congress to come to a long-term agreement on the debt ceiling.

“If that’s the case, mortgage rates will tick up, but just because mortgage rates go up, that doesn’t mean it’s a bad thing,” he said. “We’re going to be enjoying some very attractive interest rates for a very long time -- a very long time. The question is, is it going to be a 3.9 interest rate or a 4.25 interest rate? Either way, it’s still a very nice rate.”

COMMENTS

  • by John C Durham | 10/31/2013 12:52:38 PM

    Yes, "Jobs" are first. Employment trumps everything. Our National Debt is not but a very very very remote factor.

    More important to OUR business is $Trillions of new Fed money channeled through TBTF bank spending into the world economy to support un-secutritized "securities" VS. $Trillions spent into the REAL economy.

    We can only hope the next elections will show more voters realize that federal and state INVESTMENT creates jobs just like private INVESTMENT can. The Republican and Democrats (of both Legislative and Executive position), who raised up high, the National & State "Debt" issue (which, actually, isn't debt as commonly understood and experienced) having forgotten their employment pledges, go away soon.

    The REAL American economy today can support approximately $25Trillion in new credit. The best way to keep the TBTF banks afloat is to actually insist that everything the Fed gives them is lent into the REAL economy and let them write off the worthless part of their $1.4ThousandTrillion derivative "securities" they have issued to date (since 1999).

  • by Ted Harris | 11/1/2013 10:53:19 AM

    Really, how long can low mortgage rates last? It appears that the Fed can't continue to purchase MB securities with out creating other problems with the economy. I am all for low rates but at the expense of what.
    Can we afford to continue to print money without anything to back it? I fear that if we continue down the road that we are on that the dollar will lose its place as the world currency and we will really see the economy take a beating then.
    I love low rates but again I ask at the expense of what?
    Just as we require good credit from borrowers when they purchase a home, I believe that other nations will begin to hold us accountable for our (the nations) credit, just like we do home buyers.
    If every six months or so we have a problem with government shut-down what does that do to our credit reputation?

  • by John C Durham | 11/1/2013 12:07:22 PM

    Ted,

    The Fed is buying the securities to prop up the bank's securities market. However, the bank's continue to issue NEW worthless paper. So, sooner or later all this hot paper is going to have to be written off. BUT, if it is written off, then the six Devil banks will be exposed as insolvent and go under.

    That would be a very good thing (again, ($1,400Trillion is a LOT of insolvency)...except when the banks go into bankruptcy, derivative holders are first line (thank you Tom Daschle for your 1995 bankruptcy law), ahead of even depositors. Unless we put all the banks under at the same time, the other banks will cease everything as in the Leyman Brothers case.

    Or, the depositors money can be seized under the Cyprus model which is now the model for several cities, most well known, Detroit. Things will continue to get worse in proportion to how much worthless securities paper The People allow the Fed to support with new money ($26Trillion) that should be going to Main Street and the REAL economy, manufacturing, infrastructure, education, health, etc.

    Pension fund money is being taken by banks who sold hot paper to Detroit. The financial problem for Detroit (and other cities that are getting this same treatment right now) was the original derivative paper was not actually secured. The cities found out that they had made bets, not purchases.

    Let me illustrate something that even gets worse: what if the States wake up some day and find out all their money, they are sending to Wall Street every day when the Sun goes down, is GONE? That is, all the money of the states has been "bailed in". Face it people. We actually don't have a financial system. But, we sure need one. Until Glass-Steagall is restored or until the States, Counties and Cities establish public banks (40% of the world's banking is done with public banks, most notably Japan's Postal Banks who provide credit to the government from citizen's savings) we are not going to have one.

    Public banks have the advantage of keeping their profits for public operations which eliminates the debt problem owed when private banks are the original source for all new currency. Again, would you rather your state was paying YOU good interest for your savings or they continue to pay Wall Street? Duh!

    North Dakota has a State Bank that provides money to all the community banks. Student mortgages, guaranteed by the State Bank, from a community bank in North Dakota are cheap. All the mortgages are cheap and are kept that way by The People's state bank. The Bank of North Dakota is in very good financial shape since they kicked Wall Street out in the 1920's. Unless a person just walks away because they don't want to try to work it out, it hasn't foreclosed on farms, small business and homes since it was formed by a collation of Democrats and Republicans, labor, small business and farmers like banks in other states recently have.

    Again, The People keep all state bank profits because it goes to THEIR state government to pay bills. This is a CREDIT system, not our present DEBT system. Why should the states and big pension funds let Wall Street make bit profits on The People's money? The Community Banks run a straight game and keep interest rates low because they get a lot more help for their State Bank than they ever did from the Fed. The big banks can't compete with them, can't run them out of business.

    The State Bank clears checks, by the way...not the Fed.

    Anyway, as long as there is (1) cheap money available to borrow (and that can be made more overnight by flipping a switch), no one is going to have any financial problems unless honest Savers aren't paid what they should be paid. There can't be any (2) devaluation of the currency, if all the new money created is spent on something of REAL value, which value BACKS the money as certainly as gold or silver, ie, REAL VALUE is something like: a correctly priced home!

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