How often in high school or college did we sit in our seats and say, "Why do I need this class, what is it going to do for me in real life?" Was economics one of those classes for you? Was not everything covered in economics irrelevant at the time? Did it have anything to do with real life? Well, today, if you plan to buy a home or refinance your current home, it does. It would be fun to have a crystal ball and predict the ebb and flow of mortgage interest rates (I would also make a lot of money.)
The last couple of months have been strong refi months. Rates were in the range of last strong refi boom; just a fraction below 7% for the 30-yearfixed mortgage. This, however, lasted a very short time. Rates as of this writing are still in a range that will offer homeowners and buyers very good opportunities for savings. Yet, rates do bounce around. There is no predictability when it comes to mortgage interest rates; or is there?
In a previous column, I wrote about rate locks, the timing of rate locks and the costs to lock a loan in if you have any concern about where rates may be heading. Many borrowers who are in the process of refinancing their home are at a point that just one quarter of 1 percent can make a difference as to whether the cost of refinancing is worth the new reduction in rate. The slightest upward tick can mean a loan being put on hold. I can tell you that no one has a crystal ball.
I get questions from borrowers, asking very sheepishly, about rate trends. They know that predictions are difficult and the best anyone can do is give a semi-educated guess. I heard a prediction that during the first half of this year, 68% of economists polled predict rates to decline with 14% predicting an increase in interest rates. The remaining group was neutral, neither up nor down. The second half prediction was overwhelming in the direction of increased rates. Do they really know?
With this in mind, there are a few (in fact more than a few) indicators of interest rate movement. There is so much information available to the public that one can get overwhelmed and totally confused. This past week was a good example. The Capital Markets anticipated that Federal Reserve Chairman Greenspan's report on Capitol Hill would be of such a nature that he would look to reduce interest rates. Whenever there is an anticipated result, the bond market moves as if the anticipated result is an actuality. It factors in the hoped for message and rates move downward.
If the desired message is not forthcoming then the bond reacts quite radically. It did that, Tuesday. During the business day we saw two mortgage rate increases. Market expectation was that the Asian monetary situation would push the Chairman to offer reduced rates to offset the anticipated influx of goods from Asia. Lower interest rates would help make our domestic products more competitive. As we know, he held rates steady.
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