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Mortgage rates headed to double digits

Ken Cook

When you have spent enough time in your own industry you learn to read or sense change by subtle changes and scuttle from insiders. If you are a musician, for example, you know of a subtle change in beat patterns or melodic phrasing long before the general populace. Likewise if you are in the medical profession you will hear something at a seminar or read it in a published research paper long before the rest of the world knows about it. If you expect anything different from the finance and mortgage industry you are stopping short.

Long before, literally years before in some cases, the remainder of the open world knew there was trouble on the horizon for the real estate and finance industry there was scuttle in the mortgage industry. Then months before it started the scuttle got louder. Finally just weeks before the fallout started happening it was being shouted in the industry and starting to leak to the remainder of the world.

Today there is scuttle and it is not quiet scuttle. It is also backed by sound research and trend patterns that indicate we are headed for another impacting change in the real estate finance industry. Lately, as you may already know, the federal government of the United States has started purchasing Mortgage Backed Securities. Their purpose behind this is to instill confidence in other investors that it is “okay to get back into the pool”. Since this was supposedly the main focus of the initial bail-out plan the activity should not come as a surprise. Unfortunately, and already predicted by some seasoned economists, the impact on the market is more like dropping a pebble in the ocean. The result could be further recession strengthened by inflation.

In the end, according to many insiders, the result will be higher rates -even into the double digits- by the end of 2009 if not sooner. If I were in need of purchasing or refinancing I would not wait. Some insiders believe mortgage interest rates could go as high as double digits and sooner than we all may think.

At the time of publishing this article there are interest rates on 15 year mortgages as low as 4.625% at 4.737APR and 30 year mortgages just .25% higher. People, it just doesn’t get any better than this. Mortgage rates, without government subsidies to the banks, will never get much lower. In fact, it is impossible. As long as investors and depositors want a return there must be profit. So until you, Mr. and Mrs. General Q. Public, will in invest in lenders for zero return the interest rates cannot go below 4.5%.