One of my 2015 Housing Predictions was this:
For mortgage rates – I predict the 10 year note yield will be in a range of 1.60% – 3.04%, which means mortgage rates will be in the 3.50%-4.5% range. Even with stronger economic data from the U.S., other areas around the world such as Japan, Europe, Russia and even China are now experiencing economic slowdowns. My yield range prediction is based on recent history: In May of 2013, the 10 year note yield was 1.6% before it climbed to 3.04% over the next 18 months. If we see an upside break in the yield to over 3.04% this would be a bullish indicator for the economy, but it would also lead to increased mortgage rates. The bottom line is that I see no significant increase in mortgage rates from the 2014 peak which was roughly 4.5%. The short end of rates rising makes it very interesting for 2015 as the Fed dots are set to raise short terms rates in 2015.
We didn’t get to 1.60% like I thought we would, but 1.64% is close enough. Now, we are seeing a steady rise in yields from the lows put in by the bond market.
What does this mean for housing
1. Rate & Term refinances are dead outside a few streamline FHA loans.
2. Home purchases soon will see if they can handle the 2nd hand of housing inflation. However, we need to see yields in a range of 2.66% – 3.04% to get a good test on this.
On May 7th, 2013 I warned that the U.S. housing market should be worried about housing inflation.
The economic cycle is bit more mature now than it was back in 2013 when people were raving that housing was in Nirvana. However, if we break over 2.66% on 10 year yield we will see how well housing does. This will be the first real test for housing with the second hand of housing inflation in play.
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988.