This is the question that no one wants to face. The answer here is clear, yes rates will go up. Mortgage rates must continue to remain low in order for the lost equity to return. The public still remains nervous about entering into the home ownership market. Investors continue to buy up foreclosed and short sell property at amazing an amazing rate. This down turn is widening the gap between the haves and have not’s. This is playing out right in front of all of us and most of us do not see it or allow our emotional responses to foreclosure alter our prospective.
This blog is becoming ever more political and that was never my intent but the Fed’s continue to make changes in the Banking and Mortgage industries with little research done. The biggest Fed changes that have continued to push values lower is the HVCC appraisal process and the refusal for the Fed’s to bend on the HVCC even with their acknowledgement of the problem.
The Second and on going problem is the Fed’s continuing little changes in the process of structuring a home mortgage. It seems that everyone in Congress has an idea and they all want their idea implemented with complete disregards to any other ideas. Needless to say this is a train wreck that is going to take a longtime to work through. So we all suffer while the Fed’s continue point fingers and bicker. A perfect example is Obama’s remarks yesterday. Meanwhile the Fed’s all collect their paycheck and benefits.
The third is the Fed’s spending with little regard for how to repay the debt. Below is a chart that shows the Fed’s ever growing spending. The tax revenue is way down so where is the money coming from? The selling of Bonds is where the money is coming from and they will all have to be repaid at some point.
The Dollar value has great pressure on it as the value has been reduced to less than 10 cents of the face value in terms of buying power. Everyone should clearly see that Fed spending is out of control. The Country’s debt load is not something to take lightly. I remember a college teacher telling me not to worry about the deficit for which I could not believe he said that. There are many ways the Country’s deficit hurts us all but let’s look at an easy one.
The Countries deficit hurts the value of the dollar which hurts the buying power of the dollar both within the Country and world wide. So I am assuming that you understand the foreign money exchange rates. With that said you understand that the dollar loosing value takes more of the same dollars to buy the same item with a price that has remained the same. I am talking about gasoline prices. You have to understand that we import most of the gas we use today and the world price sets the price at the pump. So the world price for oil can remain unchanged and the price can go up. The reason is because the dollar value or exchange rate goes down so it takes more dollars to buy the same oil. The price for oil did not change. The buying power of our money changed which changed the price at the pump for you and I. This is why a stronger dollar is good for us.
Most of the Fed’s in office today are hung up on Heath Care and I agree it is an important subject. The current plan and process of the Health Care bill clearly sucks out loud! It is moving way to fast to be fair to everyone. This short sighted vision is the same approach that causes more trouble than good. How about this, if we got more people working then our Health Care cost would be a much lower cost percentage when compared to the GDP. This is not rocket science.
So for the same reasons gas prices at the pump are rising yet again home mortgage rates will rise to the mid 6% range soon. The Fed’s have been buying MSB’s, mortgage backed securities, for the past year plus but have said they will stop buying MBS’s soon. Once the Feds stop buying the MBS’s the rates will be subject to market values which I am estimating in the mid 6% range for a 30 year fixed mortgage. Time will tell. Congress can still always vote on extending the MBS’s buying program which would change everything but as said before, time will tell.