I think we’ve become de-sensitized to the rally cries from the real estate and mortgage communities that, “Rates are going up! Act now before they do!” It feels like we’ve been crying wolf for the last several months because rates have managed to stay so low, for so long now. Well, I think the rate party is finally coming to an end.
Yesterday we saw a dramatic sell off in the Mortgage Backed Securities market which resulted in a fairly significant and rapid jump in rates. I won’t bore you with the details except to say that the Fed is – at least for now – holding firm to its commitment to stop buying MBS’s at the end of this month. Threats of inflation and a rallying stock market are also putting upward pressure on rates.
Ben Bernanke did say again today that the Fed will do what it can to keep borrowing costs low for as long as possible to allow the economy’s recovery to gain more traction. But, they will be limited in their power to do so.
Check out the chart below showing how rates have moved for the last 18 years. Notice how both the 30 yr fixed rate mortgage (red line) and the Prime interest rate (green line) as of January of this year were at their lowest point in that 18 year period. Now check out the grey line which is a pretty close representation of the Fed’s short-term rates which they’ve been holding as close to zero as possible.
So, here I am, crying wolf again! But only because I think The Wolf has shed his sheep’s cape and is creeping very close, ready to pounce and eat up those deliciously low rates.
Mike Anderson has written 9 articles on MasterMoneyTips.com
