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Andrew O'Fee of Crump Mortgage Discusses Rates

August 29, 2011

Andrew O'Fee, a loan officer with Crump Mortgage, a Grant Preferred Lender, took a moment recently to discuss the future of mortgage interest rates. A question often asked of me as a loan originator is where I think the market or rates will be going forward. As a former mortgage backed securities trader for 20 years, it was my job to always have an opinion as to the direction of the market. When I say market, I do not necessarily mean looking at the Dow Jones average or the S&P 500, which is broadcast daily as the benchmark to equity movement. There are several nuances outside of the equity/stock market that gives rates direction. You could stare at yields on US government debt or learn how to analyze spreads of other fixed income products, like mortgage backed securities, agencies, municipals or corporate debt. I like to think of the market in terms of 2 basic principles. First, take a look at the economy of the country as a whole or, like I like to, up front and close. When the economy appears to be slowing or is in recession, which is where we still are, those with money invested in US companies will run to the safe haven of US debt. The recent downgrade by S&P to AA had absolutely no impact on the strength of the US to pay back debt. Then, rates are simply affected by supply and demand dynamics. Buy more of one thing, prices will go higher, or in this case, yields/rates go lower. Secondly, inflation will always be a topic of discussion among Fed governors who ultimately have the final say as to what rate they will lend money to banks. If you hear that inflation is picking up, that means that the demand for products is greater than what may be available. Fewer products, great demand, higher prices. The Fed will intervene quickly to make it more costly to borrow to purchase in order to quell the price spike. We certainly face challenging times ahead in real estate and lending. One thing to remember. Even though we are at historical lows in mortgage rates, we are here for one reason and that is because our economy has yet to rebound. For those that are thinking of buying, take a look at where you would be investing your money versus purchasing a home. I have had several customers over the past couple of weeks decide they would rather not rent and not watch CNBC as their portfolios whipsawed.