Will Interest Rates Go Lower? Yes, And Here Is Why.

Will Interest Rates Go To 4.5%?

We have been asked that question often recently. Normally, when people ask us “what is going to happen with interest rates” we usually reply with “well, one of three things can happen:

  • They can go up,
  • They can go down, or…
  • They can stay the same.”

If you asked me the question today of “are interest rates going to go down?” my answer now is “yes, interest rates will go down in the near term and here is why…”

Interest Rates Will Go Lower

The Federal Reserve released implementation details on its previously announced program to purchase mortgage-backed securities. This is a drastic new step that the government has taken in an effort to keep mortgage rates low, which in theory will spur demand and help increase home sales numbers as well as provide some help to those homeowners who are currently struggling to make their house payment.

Only fixed-rate Mortgage Backed Securities that are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible for purchase. Other products such as adjustable rate mortgages, jumbo loans, and structured bonds are excluded.

Purchases are expected to begin as soon as next week and up to $500 billion will be bought. This $500 billion is in addition to the current Treasury’s agency Mortgage Backed Securities purchase program which has been running at $20-25 billion in recent months.

$500 billion is a huge number — probably big enough to cover most of the 2009 mortgage backed securities agency supply for 2009 and so it is difficult for me to see how mortgage rates don’t go lower – possibly solidly into the 4% range that everyone seems to be talking about.

Will Mortgage Rates Go Lower?

Yes.

And I reserve the right to be wrong.

Right along with all of the other “experts” that you see on CNBC.

Happy New Year!