Where will mortgage rates be in 2010/2011?

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phantom600rr_IHB

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More likely than not, my wife and I will be waiting until 2010 or 2011 to buy a home, possibly in Irvine. We are currently renting in IAC Woodbury. We have a significant amount saved up already for a down payment, so we are actually hoping that mortgage rates will increase significantly in the next 2-3 years. We anticipate on a 80% down, 20% loan scenario. Orchard Hills' future single family residences may surely be an option. Thus, my question to everyone is "Where do you think rates are headed? And how high will they go (if at all)? Thanks in advance for your inputs.
 
If they go to 15%, I should buy a damn house this summer... Can get a 30-year fixed jumbo at 6% right now from PenFed.
 
If they go to 15%, housing prices are going to $100 per foot. Would be worth the wait to save the extra $200 to $250 per foot in purchase price.
 
Cmon IPO - you are making a rookie mistake, you can refinance a high rate, you cant refi an inflated principal balance. If the rates jump to 15% there would be a significant corresponding decrease in home prices.
 
[quote author="qwerty" date=1209711556]Cmon IPO - you are making a rookie mistake, you can refinance a high rate, you cant refi an inflated principal balance. If the rates jump to 15% there would be a significant corresponding decrease in home prices.</blockquote>


On my target purchase, prices would have to fall 40% to equalize the difference between 6% and 15% mortgage rate. Considering they probably still need to fall another 15-20% even with ultra low rates to get to rental parity, this would nearly 60% drop from today's prices. I might have finally bought into this housing correction thing, but I have a hard time envisioning 1998 prices, which is what this scenario would mean.
 
IMO, giving serious thought to where rates will be in 3 years or more is really just an exercise in hearing yourself talk. There are simply too many variables to make an accurate guess (other than to say, rates will be some degree higher). Search around on google and you can find the historic charts for 30 year mortages, etc... and you will clearly see that the last 3-4 years have been at historical lows when compared with the last 30 years worth of mortgage rates... not to mention that there is little way to know exactly how liquidity for loans will look in 3 years or more... which has far more to do with the cost of money today... right now, its a mixed bag on where the economy is, and is going (recession, rough patch, stagflation, etc). Personally, I'm voting for mild stagflation and the 30-year mortgage to run about 8.5% (using pentagon federal as the standard for cheap money)... my God, if you went to BofA, you might get hosed for 11% in three years... if the economy heats up in teh wrong ways, if the dollar is still not worth a crap, and if liquidity is still a problem because of the recent fed treatment causing resets to be far less painful than they could have been... then rates could be astonishingly high. However, what appeared to be a clear wave of destruction is being diffussed with series of governmental actions...so not even Yoda could figure it out.
 
If the rates go to 15% in the next two years, how long will they take to drop again? Many people in these forums state the fact that you can refinance a high rate, but you can't refinance a high purchase price. True, but how many years will you pay the extra interest at the higher rate until rates drop enough to make the refinance costs worth it? What economic situation will apply downward pressure on mortgage rates 2-5 years from now?
 
[quote author="Bergsteiger" date=1209714309] how many years will you pay the extra interest at the higher rate until rates drop enough to make the refinance costs worth it? What economic situation will apply downward pressure on mortgage rates 2-5 years from now?</blockquote>


Wraparounds? The assumable loan has been an answer in the 80's where there was a big spread between past and then-present debt. I anticipate that as being a vehicle that will help apply the downward pressure when the banks have retreated, re-grouped, <strong>and come back angry</strong>.
 
Buy the property when interest rates are high with an ARM. Ride the interest rates down and when low enough, refi at a lower rate.
 
Rates are not as important as price. If you purchase a home because of where rates are, then you probably shouldn't be buying a home. A 500k loan @ 6% interest yields a payment of $2,998 a month



A 400k loan(only a 20% decrease in value) would need to have a rate of 8.22% to yield a payment of $2,998 a month. Rates are immaterial. As a renter and saver, you should want rates to increase. This will further depress values and help you earn a higher yield on your savings.
 
It is very true that rates are not as critical as price when referring to real estate purchases. We are currently being offered much lower interest-bearing accounts (cd's, money markets, savings, etc.) vs. even one year ago. That is why my wife and I are hoping for rates to shoot up in the next few years, thus, allowing our savings rates to increase and at the same time home prices to decrease. Yes, realistically, I'm with irvinerenter....rates will be 8%-10%. 15% may be asking too much! LOL
 
[quote author="IrvineRenter" date=1209727030]Realistically, I expect mortgage interest rates to be between 8% and 10%, probably closer to 8%.</blockquote>


I can't believe my eyes. Irvinerenter is rational after all. :-)
 
6-7% on the 30 year conforming. +75 bps for Jumbos. They (Fed's) are going to have to keep rates artificially low for an extended period of time. The housing recovery (when it happens) will occur after a long period of sideways movement. Try to picture a side view of a pool, with the deep end on the right, and a very low angle for the wall on the right hand side (slow recovery of prices). Faced with these types of conditions, mortgage rates will have to be kept low. I also think that competing asset class returns will also be low, particularly among high quality assets.



I think rates will get lower in 2009. I am still looking for a 4.75% 30-year conforming in '09.
 
You should be praying for MUCH higher rates if you are looking to buy in 2010/2011. The higher the rates, the less you'll pay.



And you can always refi later to lower it.



$500,000 loan today at 6% = $2,997 + ($6,250/12 = $521 in property tax (calculated at 1.25% of value)) = $3,518 mo PIT



$350,000 loan 2010/2011 at 9.75% = $2,997 + ($4,375/12 = $364 in property tax (calculated at 1.25% of value)) = $3,361 mo PIT



Now I know these #'s are a little off cause you loan amount and property value will not be the same (HOPEFULLY!) but you get the idea... Always better to buy for less with higher rate, you also get a property tax savings there too!



Now when you go to refi in 2012-2015, it just goes downdowndown from there. The guy with the $500,000 on the same house is probably still underwater or close to 100% LTV at that time, and refinancing does nothing for him unless rates crash to historic lows, which would STILL help you MORE with the smaller loan amount.



Done and done.
 
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