Since mortgage interest rates fell in 2008 and 2009, many prospective home buyers have come to consider rates in the 3.5% to 4% range “normal.” There were many rumors that rates were about to shoot upward again, and I certainly told many clients that “rates can’t stay this low forever.” It turns out that mortgage rates have begun inching upward, but frequent press reports about the Federal Reserve Board raising interest rates can cause confusion among concerned mortgage borrowers who don’t understand that the Fed has no direct control in the mortgage market, and that in fact mortgage rates really don’t consistently follow the rates that the Fed does control. With that in mind, I feel to need to recall a couple of previous posts.
Almost three years ago I wrote All the talk about interest rates …, commenting on the lack of a relationship between the Federal Funds Rate and short-term bonds, and mortgage interest rates. Although I have not extended the relevant graph today, the post itself is still appropriate now. If you want to forecast mortgage rates, read forecasts for the 10-year T-bill. (And of course, be informed about real estate market health and outlook. That’s why I have maintained and written about my market dashboard for almost 10 years. Just search “dashboard” on this site.)
Earlier this year I posted Interest Rates Rise and expressed my belief that we would finally see rising rates this year. Today, I still believe that will see slowly rising rates over the next couple of years. (We will also see rates fall back along the way, and then rise a little more.)
My crystal ball gets foggy farther into the future, but I wanted to remind readers that the sky isn’t falling, and that what the Fed does has little to do with it.