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.”