Rates still low, but lenders say future uncertain

Local mortgage lenders all like to joke that knowing exactly what is going to happen to mortgage rates from now until the end of the year is like looking into a crystal ball and divining the future.
Furthermore, if they had that talent, they sure wouldn’t be doing what they are doing now.
“I can tell you my crystal ball is no better than anyone else’s,´ said Michael McCabe, a loan officer for Poudre Valley Mortgage in Fort Collins.
Maybe not, but it’s good enough to provide an educated hunch. For example, Bankrate.com’s panel of experts – 100 of them – is evenly split on whether mortgage rates in the next month are going to rise or stay the same. Very few of them say they will continue to go down.
The same bias holds for the people around here. In fact, none of the local lenders who work in mortgage finance say the rates are going to go down some more.
“I haven’t heard anyone say that that (30-year fixed) rate is going to go down,´ said Mike Maher, one of the co-owners of Front Range Mortgage Professionals in Loveland. The rate for a 30-year fixed mortgage as of Sept. 30 was 5.28 percent.
That’s low. It wasn’t too long ago that mortgages were much higher.
“What always amazes me is that you could have been in the mortgage business for years,´ said Maher. “Let’s say you were my dad’s age and you got into the business in the ’60s. You could have retired … gone through your entire career … and you would never have seen mortgage rates like this.”
“I think that’s true everywhere,´ said T. Michael Davis, the vice-president of operations for Fort Collins Mortgage. “Anywhere you go you are going to see a 50-50 split in opinion. The optimist in me says that the economy is under control and rates are going to remain where they are. Another part of me is saying that they are probably going to go up.”
Which pretty much sums up the picture as far as mortgage lending goes. Things are going to stay the same for a month or so but interest rates are bound to head back up eventually, simply because they really have nowhere else to go, experts believe.
Federal Reserve Board Chairman Alan Greenspan dropped short-term interest rates to their lowest level ever earlier this year, mostly because fears of inflation were so low. Other interest rates, such as the prime lending rate, followed the downward trend, setting the stage for current conditions.
“The prime is around five and three-eighths,´ said McCabe, “and that’s historically low.”
Which it is. Davis recalls just before Ronald Reagan took office in 1981 when interest rates were 16 percent.
The three local lenders – McCabe, Davis and Maher – think rates will rise gradually when they do start to climb. How much and how far is where they differ, and they don’t differ all that much.
McCabe thinks prime interest rates will stay the same for the rest of the year. The rate for a 30-year fixed mortgage interest will rise to 6.5 percent, but the hike will be incremental over the next couple of years. Davis says rates will go up too, but the optimist in him doesn’t expect an increase for at least six months. Maher thinks they will go up too, but it will be gradual, moving a quarter point at a time.
The drop in interest rates has changed the mortgage business as recently as this year. Earlier in 2004 refinancing was in demand. If you had a mortgage in April, chances are you wanted to refinance it for a better interest rate.
Now that’s all changed.
“It’s purchases now,´ said Maher, “Buying a new home or a used one. That’s still strong. Six months ago it was refis. I don’t want to say that refis are dead, because they aren’t. But six months ago, everyone wanted a refi. Now, you just don’t see it as much anymore.”
The prognostication business is tricky and is fraught with all sorts of surprises. Take the Fed’s latest action. On Sept. 21, the Fed raised the target federal funds rate 25 basis points to 1.75 percent. Short-term rates, which usually govern things like auto loans, went up accordingly.
Since interest rates are finicky creatures, it was assumed that long-term rates would rise as well without the prime lending rate being touched. They dropped instead.
This was widely regarded as rare.
So what does it mean?
Interest rates- the kind you pay when you get a mortgage – weren’t affected by the latest short-term hike. If you’re buying a home, you can still expect to get bargain rates on a mortgage.
The Fed has two more meetings before the end of the year. It’s widely believed the Fed thinks short-term interest rates are too low and would like to raise them to 2 percent or more.
Still, the Fed doesn’t want to stall the economy.
While short-term interest rates have little to do with mortgage rates, anytime the Fed starts jacking around with one class of interest rates, the others tend to follow.
It did not happen last time but it might happen next time.
“He,´ said Maher, meaning Greenspan, “can just talk about them. What he says is very closely watched. There are people who look at every single word. He could just talk about them being too low and they could go up.”