What's Next For Interest Rates?

There has been much discussion about what is happening and what will happen to mortgage interest rates.  CNNMoney had a headline this morning “Farewell 3% Mortgage Rates.”  Mortgage-backed securities have worsened by 400 basis points since May 8th, 2013 which is equivalent to an increase of 1% in an interest rate.

My personal opinion is that this sell off has been over exaggerated as the Fed did not say when they will taper off their purchases of mortgage bonds.  They just said that they will as the economy improves.  The unemployment numbers are still too high and we will find out tomorrow if the real numbers get reflected in the report.  If you haven’t been looking for work in the past 4 weeks you are not included in the unemployment numbers which masks the real unemployment rate.  Also, wages have been stagnant which is an issue too.

Stocks have risen due to all of the money being pumped into the economy creating a fake stock rally.  There are also too many issues going on in Europe and Japan.

The housing market cannot afford higher rates right now.  I want rates to increase because that means the economy is getting better but we are not there yet.  The increase of late has sidelined potentional homebuyers.  My logic is that if they slowly go up say .125% per month it will get others off the fence to buy but when they increase a whole percentage point in one month it scares them.

Low interest rates won’t be here forever but I do not see the Fed tapering off their purchases as soon as June, July, or August as many think so in turn I think the rise in rates will temporarily stop but don’t wait too long because no one can predict when the low rates will end.