Future of mortgage rate

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jay22
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Future of mortgage rate

Post by jay22 »

The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
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retired@50
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Re: Future of mortgage rate

Post by retired@50 »

jay22 wrote: Tue Sep 20, 2022 4:09 pm ... How high can they really go?
My first mortgage in the 1980s was at 9.75% and I felt lucky to get that rate. It was a 2-year low at the time.

More historical data here: https://www.erate.com/mortgage-rates-history

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Golf maniac
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Re: Future of mortgage rate

Post by Golf maniac »

No one can give you an exact answer. For the next 6 months rates should continue to trend up as the Fed raises rates to try and reduce inflation. Powell stated there will be some more pain. If inflation begins to moderate the Fed will stop raising rates. When inflation is tamed and the Fed stops raising rates the market will rally and we may see some falling rates. Many RE buyers are going to an ARM product now with the anticipation of refinancing in the future when rates go lower. Something like a 5/1 or 10/1 ARM is what I would look at now if I was buying.
gavinsiu
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Re: Future of mortgage rate

Post by gavinsiu »

It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
delamer
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Re: Future of mortgage rate

Post by delamer »

My first mortgage rate was 12.75%.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
delamer
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Re: Future of mortgage rate

Post by delamer »

gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
Do you have a source that shows 18% in the ‘80’s?

I don’t remember anything that high for a conventional 30 year.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
BogleWogle
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Re: Future of mortgage rate

Post by BogleWogle »

delamer wrote: Tue Sep 20, 2022 6:13 pm
gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
Do you have a source that shows 18% in the ‘80’s?

I don’t remember anything that high for a conventional 30 year.
Looks accurate based on the below link.
https://fred.stlouisfed.org/series/MORTGAGE30US

To the OP’s question - my guess would be up. I’m of the belief that a home purchase is as much a financial decision as a lifestyle decision- if the numbers work and you want to buy, do it! :happy
Hyperchicken
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Re: Future of mortgage rate

Post by Hyperchicken »

Gives interesting perspective to all the people who got sub-3% mortgages and are now able to hold on to these for as long as they can.
delamer
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Re: Future of mortgage rate

Post by delamer »

BogleWogle wrote: Tue Sep 20, 2022 6:19 pm
delamer wrote: Tue Sep 20, 2022 6:13 pm
gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
Do you have a source that shows 18% in the ‘80’s?

I don’t remember anything that high for a conventional 30 year.
Looks accurate based on the below link.
https://fred.stlouisfed.org/series/MORTGAGE30US

To the OP’s question - my guess would be up. I’m of the belief that a home purchase is as much a financial decision as a lifestyle decision- if the numbers work and you want to buy, do it! :happy
Thanks; I guess my 12.75% was a relative bargain.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
gtrplayer
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Re: Future of mortgage rate

Post by gtrplayer »

jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
The problem with the Fed is they can’t really target inflation. If the cost of consumer goods continues to rise, they will continue to raise rates, even if result is the rates end up ridiculously high for home purchases. In a perfect world, they could better target rate hikes because housing purchases are already slowing and likely won’t be a driver of inflation at rates like 6.5% and especially not at 10% or 15%
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jay22
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Re: Future of mortgage rate

Post by jay22 »

Probably a stupid question, but can’t the Fed put a cap on what the max 30 years fixed rate would be irrespective of how many rate increases they do?
Roadhog
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Re: Future of mortgage rate

Post by Roadhog »

Had a 14.5% 30 year fixed mortgage in '82. Paid it off as quickly as possible. Rates headed up as long as inflation is at where it is. Also Fed will possibly be liquidating it's balance sheet which includes mortgage debt. Will also have an upward impact on rates.
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Re: Future of mortgage rate

Post by exodusNH »

jay22 wrote: Tue Sep 20, 2022 7:04 pm Probably a stupid question, but can’t the Fed put a cap on what the max 30 years fixed rate would be irrespective of how many rate increases they do?
That's not the role of a central bank.
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JoeRetire
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Re: Future of mortgage rate

Post by JoeRetire »

delamer wrote: Tue Sep 20, 2022 6:13 pm Do you have a source that shows 18% in the ‘80’s?

I don’t remember anything that high for a conventional 30 year.
This might help: https://www.freddiemac.com/pmms/pmms30

I remember.
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arcticpineapplecorp.
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Re: Future of mortgage rate

Post by arcticpineapplecorp. »

my 1st mortgage was 8% (1996). Then I was able to refi down to 5.35% (in early 2000s) shaving 9 years of payments off and keeping the mortgage amount the same.

Rates were 14%-16% in the 80s if memory serves.

I think i read the Fed is going to raise 0.75% tomorrow and then hold steady (assuming either they're seeing a lessening of inflation already or they're afraid of having created a hard landing, aka recession).
Last edited by arcticpineapplecorp. on Tue Sep 20, 2022 7:35 pm, edited 1 time in total.
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JoeRetire
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Re: Future of mortgage rate

Post by JoeRetire »

jay22 wrote: Tue Sep 20, 2022 7:04 pm Probably a stupid question, but can’t the Fed put a cap on what the max 30 years fixed rate would be irrespective of how many rate increases they do?
No, they can't.
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
alex_686
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Re: Future of mortgage rate

Post by alex_686 »

jay22 wrote: Tue Sep 20, 2022 7:04 pm Probably a stupid question, but can’t the Fed put a cap on what the max 30 years fixed rate would be irrespective of how many rate increases they do?
How deep down this hole do you want to go? The short answers is that they don't.

Imagine if they put a cap on rates at 10% and inflation was running at 15%? Anybody lending out money for a house mortgage would be more or less guaranteed to lose money. Banks would lose money if they issued out new mortgages. The Fed, as a regulator of banks, would look down on that. When other countries have tried to do this it lead to very bad things.

Technically there are things that the Fed can do at the edge. In reality it is the supply and demand of the market that drives the rates.
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Re: Future of mortgage rate

Post by nyclon »

jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
The fed is targeting real estate as an asset class to go down in value. High mortgage rates help the fed in their mission.
I wouldn’t expect these rates to meaningful fall for at least 6-9 months at the earliest. In the meantime home prices will fall.
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Re: Future of mortgage rate

Post by whodidntante »

Oh no! You've triggered the old people! :happy
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Re: Future of mortgage rate

Post by whodidntante »

gavinsiu wrote: Tue Sep 20, 2022 5:58 pm I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
It could be an ARM and a leg? Don't forget to tip your server.
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Re: Future of mortgage rate

Post by Northern Flicker »

delamer wrote: Tue Sep 20, 2022 6:13 pm
gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
Do you have a source that shows 18% in the ‘80’s?

I don’t remember anything that high for a conventional 30 year.
I remember those rates. Mortgages were assumable. When I looked at houses in 1981, the norm was an assumable loan and sellers carrying a 2nd with a 5-year balloon for the buyer to refinance and cash out the seller on the 2nd. That often was the only way the sellers could get their houses sold.
Last edited by Northern Flicker on Thu Sep 22, 2022 2:53 pm, edited 2 times in total.
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Re: Future of mortgage rate

Post by Golf maniac »

gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
A 5/1 or 10/1 ARM are excellent products now as they lock in the rate for 5 to 10 years and hopefully you can refinance when rates go down. Not sure the current spread to 30 yr fixed but worth a look if you are in the market to buy. Also, mortgage companies are now required to qualify a borrower for a higher rate than the initial rate on an ARM.
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Devil's Advocate
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Re: Future of mortgage rate

Post by Devil's Advocate »

delamer wrote: Tue Sep 20, 2022 6:09 pm My first mortgage rate was 12.75%.
I bet you walked to school up hill both ways through deep snow too!

:P :sharebeer
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Re: Future of mortgage rate

Post by retired@50 »

whodidntante wrote: Tue Sep 20, 2022 7:44 pm Oh no! You've triggered the old people! :happy
Thanks for a good laugh.

Regards,
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Ron Ronnerson
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Re: Future of mortgage rate

Post by Ron Ronnerson »

jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
Historically speaking, rates are beginning to come back into normal territory after being low or crazy-low over the past decade. Perhaps they will bring home prices back down to Earth as well. 6 months ago, my home value was being estimated at about 20% higher than it is currently by sites like Realtor and Zillow. I expect the trend of higher rates and falling prices to continue in the months ahead.

Full Disclosure: I’m just taking a guess due to the lack of a functional crystal ball and have little to no confidence in my forecast.
trickshot
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Re: Future of mortgage rate

Post by trickshot »

According to the CME FedWatch Tool, the most likely predicted target rate in March 2023 is 450-475 bps (+2.25% from current target) and the most likely predicted target rate in September 2023 is 425-450 bps (+2% from current target).

My understanding is that the current mortgage rates already reflect these expected increases in the target rate. These expectations change over time, so if the Fed ends up signaling a slower than expected increase in rates, then I would think that mortgage rates would go down as a result and vice versa.
TheLuckBox
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Re: Future of mortgage rate

Post by TheLuckBox »

The Fed increasing the overnight rate really has nothing to do with long-term fixed mortgage rates. That overnight rate immediately affects loans like HELOC's, credit cards, auto loans, etc. Long term fixed rates are high right now because of inflation. The Fed increasing their rate is a reaction to inflation and an attempt to cool the economy.

Rates will come down when inflation starts coming down. The sooner we get into the recession (which I believe we are already in), the sooner we will get some relief with interest rates.

The consensus is the Fed will increase that overnight rate by 75 bps tomorrow. IMO, if they increase by 100 bps, we'll actually get some improvement on long-term mortgage rates because that will signal to the market they are getting more serious about stopping this inflation.
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Re: Future of mortgage rate

Post by alex_686 »

TheLuckBox wrote: Wed Sep 21, 2022 12:01 am The Fed increasing the overnight rate really has nothing to do with long-term fixed mortgage rates.
Eh. Indirectly it does.

Banks can invest in low duration assets. i.e. short term things with little interest rate or credit risk.

Or they can invest in longer duration assets like mortgages with lots of interest rate and credit risk.

So if short term rates go then so should long term ones.
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Re: Future of mortgage rate

Post by DVMResident »

Golf maniac wrote: Tue Sep 20, 2022 8:10 pm
gavinsiu wrote: Tue Sep 20, 2022 5:58 pm It will most likely go up, as to how much no one can say. As inflation goes up though, feds hike their rate to slow inflation but also increases the cost of borrowing. The worse was probably in the early 80s when feds had to do a qreat deal of rate hike resulting in mortgage reaching a high of around 18%. Though the rates did drop, it was in double-digit for most of the 80's.

I think getting ARM is not a great idea. If the rates go up, it might exceed what you can pay when ARM rate goes up.
A 5/1 or 10/1 ARM are excellent products now as they lock in the rate for 5 to 10 years and hopefully you can refinance when rates go down. Not sure the current spread to 30 yr fixed but worth a look if you are in the market to buy. Also, mortgage companies are now required to qualify a borrower for a higher rate than the initial rate on an ARM.
The current 7/1-to-30yr fixed spread is about 0.625%, which is saves ~$31/month in cash-flow and an add ~$12/mo principal per $100k of loan. This spread has been stable between 0.5 to 0.75% for some time.

Personally, I’m quite happy with my 7/1 ARM at 2.875% with interest rate hikes and arbitrage opportunities, but liquidity risk is not an issue for me as it is for many.
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Re: Future of mortgage rate

Post by alex_686 »

DVMResident wrote: Wed Sep 21, 2022 7:27 am Personally, I’m quite happy with my 7/1 ARM at 2.875% with interest rate hikes and arbitrage opportunities, but liquidity risk is not an issue for me as it is for many.
Historically, over the past 50 years, ARMs have been the better deal over fixed rated. I got that from a Fed study. Of course, it depends on what type of interest rate environment you are in. And what your risk appetite is. If you expect higher inflation and higher real rates in the future then fixed is the way to go.
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Wrench
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Re: Future of mortgage rate

Post by Wrench »

Golf maniac wrote: Tue Sep 20, 2022 5:16 pm No one can give you an exact answer. For the next 6 months rates should continue to trend up as the Fed raises rates to try and reduce inflation. Powell stated there will be some more pain. If inflation begins to moderate the Fed will stop raising rates. When inflation is tamed and the Fed stops raising rates the market will rally and we may see some falling rates. Many RE buyers are going to an ARM product now with the anticipation of refinancing in the future when rates go lower. Something like a 5/1 or 10/1 ARM is what I would look at now if I was buying.
When rates were in the high single digits in the late 80s, that's what I did. A 7/1 ARM, then refinance to a 5/1 ARM, then another 5/1 ARM and so forth as rates continued to drop. When the principal got low enough, I just let the ARM readjust downward every year because it was not worth refinancing. I think the final rate before I paid it off was less than 3%.

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Re: Future of mortgage rate

Post by homebuyer6426 »

Hyperchicken wrote: Tue Sep 20, 2022 6:24 pm Gives interesting perspective to all the people who got sub-3% mortgages and are now able to hold on to these for as long as they can.
Locking in a 3% rate in 2017 was one of the best financial decisions I've made. I could hear rumblings of the housing market about to heat up and put every last ounce of energy into getting one. I know many people who missed this opportunity and are probably out of luck. They will have to pay a lot more for a house and its financing. I feel bad that many missed the opportunity through no fault of their own. But this is how markets work and we count the blessings we have. Many thanks to this forum for helping me with some of the details of my home purchase.
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Re: Future of mortgage rate

Post by sureshoe »

jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
Anyone who tells you they know is full of it.

Realistically, it is unlikely mortgage rates will go down by anything meaningful in the next year. It is possible they go up 1-2% more, but I would think 2% or more is unlikely (albeit possible). So 1 year from now, my best guess is you could get a mortgage for possibly as low as 5% or as high as 8%. Unless something changes.
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Re: Future of mortgage rate

Post by sureshoe »

homebuyer6426 wrote: Wed Sep 21, 2022 9:03 am
Hyperchicken wrote: Tue Sep 20, 2022 6:24 pm Gives interesting perspective to all the people who got sub-3% mortgages and are now able to hold on to these for as long as they can.
Locking in a 3% rate in 2017 was one of the best financial decisions I've made. I could hear rumblings of the housing market about to heat up and put every last ounce of energy into getting one. I know many people who missed this opportunity and are probably out of luck. They will have to pay a lot more for a house and its financing. I feel bad that many missed the opportunity through no fault of their own. But this is how markets work and we count the blessings we have. Many thanks to this forum for helping me with some of the details of my home purchase.
I repeatedly post on here: "Carry a mortgage"

This is the reason. It's one of the few bets where if rates go down, you can reset at the lower rate. If rates go up, you have very cheap capital.

I have almost $500k in a mortgage locked up at 2.5%. Seems pretty staggeringly cheap right now.
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Watty
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Re: Future of mortgage rate

Post by Watty »

jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
The mortgage interest rate is of course important for affordability but if you can afford a house at 6.5% then don't worry too much about what the future mortgage rates will be. The reason is that if they change they can do two things.

1) If they go up then you will be glad that you have the 6.5% mortgage.

2) If they go down then you can refinance.

Like others here my first mortgage was a 9.75% and I felt lucky to get it at less than 10% because the rates dipped just before I locked in my interest rate.

What happened then was that rates steadily dropped and and I think I refinanced st least four times until the mortgage rate was in the 6% range when I moved. Every time I refinanced it only took about six months to break even.
jay22 wrote: Tue Sep 20, 2022 7:04 pm Probably a stupid question, but can’t the Fed put a cap on what the max 30 years fixed rate would be irrespective of how many rate increases they do?
As others have said they can't but even if they could it would be a bad idea since people would not make loans at the lower rates and mortgages would be impossible to get.

When I got my original 9.75% mortgage it was a lot harder to qualify for a mortgage since lenders were concerned about interest rates going up and them being stuck with a below market rate mortgage. Even if all your numbers and qualifications were good there was a risk that your mortgage application would be declined if there was something about you or the property that the lender felt uncomfortable with.
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Re: Future of mortgage rate

Post by delamer »

Devil's Advocate wrote: Tue Sep 20, 2022 8:30 pm
delamer wrote: Tue Sep 20, 2022 6:09 pm My first mortgage rate was 12.75%.
I bet you walked to school up hill both ways through deep snow too!

:P :sharebeer
Well, it was uphill one way to the bus stop. And we did get snow occasionally! :D

The last conventional mortgage that we held was 2.75% for 10 years. If you’d told me that would happen back in the early 80’s, I would have laughed at you.
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Re: Future of mortgage rate

Post by SmallSaver »

nyclon wrote: Tue Sep 20, 2022 7:43 pm
jay22 wrote: Tue Sep 20, 2022 4:09 pm The 30 years fixed mortgage is close to 6.5%. The volatility that we have seen in the last 52 weeks is probably unprecedented.

Where do you see mortgage rates landing in the next 6-12 months? How high can they really go?
The fed is targeting real estate as an asset class to go down in value. High mortgage rates help the fed in their mission.
I wouldn’t expect these rates to meaningful fall for at least 6-9 months at the earliest. In the meantime home prices will fall.
Unfortunately they're targeting a supply problem with interest rates, which could very well exacerbate the problem.
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Re: Future of mortgage rate

Post by Northern Flicker »

alex_686 wrote: Wed Sep 21, 2022 6:13 am
TheLuckBox wrote: Wed Sep 21, 2022 12:01 am The Fed increasing the overnight rate really has nothing to do with long-term fixed mortgage rates.
Eh. Indirectly it does.

Banks can invest in low duration assets. i.e. short term things with little interest rate or credit risk.

Or they can invest in longer duration assets like mortgages with lots of interest rate and credit risk.

So if short term rates go then so should long term ones.
The mortgage rates will only go up to wherever the banks want them if there are enough buyers (or theoretically refi-ers) willing and able to originate the mortgages.

The treasury yield curve already is inverted. The spread between short and long rates may become compressed, making it less profitable for lenders to lend.
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