Rates are Drifting Upward
I am often asked where I think mortgage rates are headed. I have not posted a rate update in a while because nothing much had changed since my last post, where I said rates are stuck in a range between 5% and 6%. Rates drifted toward the lower end of that range for most of last month. They are starting to tick up a bit. Well qualified borrowers in the Chicagoland area are currently getting rates as low as 5.375%. As always, “well qualified” means a high FICO score (over 720 for some lenders, over 740 for others), a loan to value below 80%, a low debt to income ratio, and income you can document. A borrower also has the option, as always, to buy down their rate by paying additional points.
I hope I’m wrong about my current rate prediction, but we have more indications that rates will continue to go higher than lower. This is based on the performance of the stock market, the declining value of the dollar, and the assessment of several credible experts, including Fed chairman Bernanke. The Fed runs into a catch-22 problem. They will do all that they can to push rates lower to help the economy, but then once the economy picks up they switch to making sure inflation does not become a problem, which usually involves pushing rates higher. Market forces beyond the Feds’ control only complicate the matter. So only if the economy continues to be in the bad shape it is in now are rates likely to stay this low.
My answer to the question “should I lock in current rates or wait” is, I would not wait. I’d lock in now. Rates hit a low a couple months ago, dropping below 5% for well qualified borrowers. Freddie Mac’s mortgage rate records go back to 1971 and they had never been that low.
The experts aren’t always right, but most now say our economy will be growing again toward the end of this year. It would be great to have it both ways, to keep rates low while the economy grows out of recession, but that’s not the way it works. Let’s hope that our 401Ks, IRAs, home values and incomes rise faster than mortgage rates so that we’ll be ahead of the game in the long run.
