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BROKER CORNER

"Where are rates heading?"

11/5/2020

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A question we get asked a LOT is “how long will rates stay low?”.   Obviously, if I knew the exact answer to that question, I wouldn’t be writing this article for all of you fine folks!   I would be on my private island in the Bahamas or Tahiti sipping on a frozen concoction from a coconut with a little paper umbrella! J   But there are some predictions and I thought it would be helpful for you to have this knowledge for your clients.   First off, the election (if we ever finish this) should not have any immediate impact on rates.  The COVID stimulus package that everyone thought was coming before congress left, didn’t happen and since they won’t all be back until mid-November, rates should stay pretty stable until at least then.  If a big stimulus package is passed that could put upward pressure on interest rates, but it would only move them a little bit.  The big thing that will start to cause rates to move upward will be a viable COVID-19 vaccine.   When that happens, and people in the hardest hit industries can start returning to work and things start to return to normal, I would expect rates to start a more noticeable rise.   

Rates are being kept artificially low right now because the Federal Reserve is buying up Mortgage Backed Securities (MBS) to create artificial demand and drive rates lower.  This was a strategy to help the economy weather the COVID storm. 

But as soon as a vaccine looks to be in place for most Americans, and we start to see growth again, the Fed is likely to stop this policy and let the free market take over again, which will cause rates to rise.   No one knows exactly when that will be, but as you are advising your clients, let them know that any signs of vaccines working and begin distributed will most likely be followed by rising interest rates.   The best predictions we have right now is that rates will stay in the upper 2%’s range (30 year fixed) for the remainder of 2020 and will slowly begin to climb in the late first quarter or early second quarter of 2021.   The predictions show them ending 2021 in the upper 3’s.   Obviously, no one KNOWS what will happen,  but this seems to be the current consensus. 

​Thanks and Happy Thanksgiving to each of you and your families!
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  • Home
  • RMAA HUB
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