- Mortgage Rates Could Soar
Mortgage Rates Could Soar, Predicts Economist
by Blanche Evans
Sunday, February 17, 2008
There are few real estate economists more respected than Mark Dotzour, chief economist of the Real Estate Center at Texas A & M University. He says the time to refinance is now, and that there may not be a better time for years to come.
"Inflation is clearly rampant all over the world, including in the United States," he said. "When inflation is a problem, mortgage rates go up. Rates probably should be much higher right now, but they aren't."
Dr. Dotzour says the reason mortgage rates aren't higher is that the fear of a global collapse of the banking system is greater than the fear of inflation. The world's bond investors, he says, are moving their money into U.S. Treasury bonds. That's why mortgage interest rates have remained stable at about 5.75 percent on a 30-year fixed rate with good credit.
When investors are scared, there's a Wall Street phenomenon called the 'flight to quality.'
The United States is perceived as a haven of safety, says Dotzour, and that's why treasury bond investors are "willing to accept a 3.7 percent interest rate even though the U.S. inflation rate is at 4.1 percent."
Once the banking system is repaired and the fear of global collapse of the banks is over, Dotzour predicts treasury rates and mortgage rates will move up again, perhaps substantially.
So what should you do? If you own a home and you believe that we are in for a global financial collapse, then don't refinance. Interest rates will continue to fall," says Dotzour. "If you think the U.S. government and the central banks around the world won't let this happen, then now is the time to get a fixed-rate mortgage at rates we haven't seen in the past 40 years."
As far as buying goes, that's up to you, but now is as good a time as any. Sellers have lost 15 to 20 percent of the market -- first-time homebuyers and investors who were using the easy exotic loans to finance their purchases. That could mean that housing prices have further to fall. Inventories are already at 9.6-months on hand, as of December.
If prices fall, and mortgage interest rates rise, buyers may surge before rates go even higher. That could stimulate first-time homebuyers who are waiting for the green light to buy. Anyone still on the sidelines would then be facing higher prices and higher interest rates
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