Weekly Update From Tom Balk: The Window For Low Mortgage Rates Is Closing

In my opinion, we have a small window of continuing low rates.  SO if you, or anyone you know, have any desire to obtain a mortgage in the 4’s or low 5’s NOW is the time to call me!

If I had a dollar for the number of times I am asked ‘So Tom, where do you think interest rates are going from here?’  I would be a wealthy man….

Well, I am ready to share my interest rate expectations with you because I firmly believe that we have a short window of opportunity where interest rates are unbelievably (in my opinion) low given the amount of money that the US Government is borrowing.

Interest rates are determined by supply and demand for US Treasury securities and Mortgage Backed Securities (MBS).  In normal circumstances, as the supply of anything increases, the price that a buyer is willing to pay for that product will decrease.  As I apply the laws of Supply and Demand to the interest rate market, I see that as the supply of  Bonds (US Treasuries and MBS) increases, the price should decline (which will force interest rates up in order to attract more buyers for these securities).   Right now the interest rates are being held artificially low by the Federal Reserve which has been purchasing huge amounts of US Treasuries and MBS.

Now for the Uncharted Danger that the market will face in the next 5 months.  The Federal Reserve has committed to purchasing MBS until the end of the year, but they are only going to continue to purchase Treasuries until the end of October.  They have been buying these long-term Treasuries in order to maintain the spread between the US Treasuries and the MBS.  Once the Fed stops purchasing Treasuries we will probably see their yields rise.  The yields on MBS may be forced to rise in order to stay competitive.  That, in turn, means higher interest rates.

Additionally conforming mortgage rates are still temporarily available to $729,750 – no one knows if these limits will return to $417,000 on January 1, 2010.  There has never been a better time to purchase a rental property, but you need to act quickly.

As always, email tom@afirealestate.com to continue the discussion. We look forward to hearing from you.