Talking Points about Rates

Bonds and home loan rates continue to take a hit this week, and a lot of people have been asking: Will home loan rates go back down? Here are some talking points:

1) First and foremost, home loan rates are still near historic lows for now. We have been spoiled, the home loan rates of the past 6 months have been the lowest in history

2) That said, rates continue to head up…and indications are that those unbelievably low home loan rates may be behind us.

3) Looking at the big picture, there are only a few things that would bring back the lows that we saw in early November:

  •  If the tax cut package doesn’t get passed. This would be bad news for the economy and Stock market, but it would help interest rates.
  • If the Fed’s recent round of Quantitative Easing falls on its face and doesn’t meet its mission of creating inflation, boosting Stock prices, lowering unemployment and creating consumer demand. This is a long shot, but if it happened, Bond prices could make some gains as the threat of deflation reemerges.
  • If the financial problems in Europe worsen significantly. This would drive investors into the safe haven of the US Bond market – and, therefore, it could help Bond prices, but probably only modestly.

4) Realistically, the chances of those events happening are unlikely. In the end, rates may see some fleeting improvements, but will likely continue to creep up over time.