We have a dog named Lucy that believes if she stares long enough at an object, she will eventually get it (and she usually does). Perhaps this forecast on interest rates is similar. If I keep it up long enough, it may actually happen. The September Fed meeting is coming closer, so the stare may be a done-deal in a few weeks when it comes to rising interest rates.
Ted’s Forecast by Fall 2016 (unchanged)
30-Year Residential Rates 5.2 to 5.6 Percent (6 percent is also feasible)
10-Year Treasury 3.46 Percent
Rates continued to pretty much float this past week based despite strong retail sales and press remarks that the Federal Reserve Open Market Committee will likely raise rates at the September meeting. I repeat again from last week: “ The saving grace on inflation is lowered energy prices – at least for now. When energy rises, inflation numbers will be large.”
This is the 12th issue of the weekly overview of interest rates impacting real estate: 10-year Constant-Rate Treasury Notes and 30-year fixed-rate residential loans. For the first few weeks since the end of May, my expectations were spot on. Since then rates have retracted — a move I continue to believe is temporary.
To see the prior of this weekly Issue click http://blog.stewart.com/stewart/2015/08/11/interest-rates-impacting-real-estate-august-9-2015-issue-11/
Right now my forecast on rising rates is not looking too good (in the short run), but I stick with my forecast, which follows unchanged since May. No Place But Up.
While rates today are greater than the day this series commenced, the first graph shows the 10-year Constant Maturity Treasury Note. Once again belief is that the global flight to quality by international investors is seeing demand pick up and rates decline as global investors seek the safety of U.S. Treasuries. It may be a day, week or evens months when that reverses and rates elevate up. But when it does, rates are heading up. And they may do so rapidly.
The first graph shows the 10-year Treasury Note weekly year-to-date.
The red star is the day of the start of this blog series in each of the three following charts.
The 30-year fixed-rate conventional mortgage rate from Freddie Mac’s weekly series is shown year-to-date in the following graph. This series is highly correlated to the 10-year Treasury Note — see the analysis in a previous blog at http://blog.stewart.com/stewart/2015/05/19/interest-rates-going-no-place-but-up-installment-1/
The current 30-year residential rate remains at the high end of the 3 percent range now reported by Freddie Mac at 3.94 percent. The red dashed line is fit visually to illustrate the general trend in 30-year fixed rate loans since mid-May. When expectations of a Fed rate increase are truly internalized, this level will be wishful level for homebuyers
The following chart is the yield difference between 30-Year Fixed Rate Loans and 1-year Adjustable Rate Mortgages (ARMs) as reported weekly by Freddie Mac. 30-year rates are currently 132 basis points greater than 1-year ARMs. This is the fourth consecutive week of decline in that spread, over which time the spread has dropped almost 30 basis points. Again, the red dashed line is visually fit just to show the general trend since April.
I remain steadfast behind my prior forecast of 5.2 to 5.6 percent 30-year rates by the fall of 2016. If not sooner. At that time even a 6 percent level would not be a surprise. Catch your breath since rates are heading up soon. Probably at the September Fed meeting.
To read my forecast click http://blog.stewart.com/stewart/2015/05/27/interest-rates-no-place-but-up-installment-2/ and an analysis at http://blog.stewart.com/stewart/2015/05/22/increased-forecast-for-housing-sales-and-lending-in-2015-but-rising-rates-in-2016/
Rates are headed No Place But Up.
Forecast by Fall 2016
30-Year Residential Rates 5.2 to 5.6 Percent (6 percent is also feasible)
10-Year Treasury 3.46 Percent
If you have any questions or comments please email back.
Lucy – there is hope for both of us.
Ted