Interest Rates: The Roller Coaster Continues

It’s been a wild couple of weeks in the bond market, which of course led to massive volatility in the bond markets.   Generally, the rule is that inflation is the enemy of interest rates and last week, a number of reports came out showing inflation rising faster than at anytime in nearly three decades.   Overall inflation rose 9.8% in the past 12 months, the fastest annual pace since 1981. 

Likewise, tensions (err…war) between Russia and Georgia pushed oil up to $122 a barrel.  Generally, when oil goes up, so do inflation concerns, and interest rates follow. 

The Good News:  Interestingly, interest rates have actually been holding up quite well during this turmoil and have actually improved over the past week.   The benchmark Fannie Mae 30 Year Fixed rate mortgage is averaging in at 6.32%, which is a significant improvement from last week at 6.43%. 

The Bad News:  I don’t think the long-term prognosis for rates is very good.   It’s truly amazing that amid all the inflation concerns and a SERIOUSLY contracting credit market, interest rates are still at historic lows.  I mean, we’re still in the low 6’s!!  Does anybody remember where rates were the last time we had this kind of Carter-style inflation??  20% interest rate mortgages were not unheard of! 

Back to Good News:  The good news is that in this is an incredibly good time to buy!  It’s probably one of the best times in history to buy.  Thanks to the massive supply of bank owned properties and short sales, banks are finally being responsive.   A few months ago, it seemed impossible to get a short-sale done.   Now, with reality sinking in, banks are getting off their butts and approving these transactions. 

 If you can buy right now, it’s definitely the time.   Could prices come down further?   Sure, but with the combination of historically low rates and highly motivated sellers, I can’t think of too many other times in California history that have been better to buy.   Chasing a bottom is rarely a good strategy, because as I’ve said before there are too many factors at play.  Interest rates may go up and now you can no longer qualify for the house that you could qualify today.   Underwriting guidelines continue to tighten, so who know what additional rules and restrictions they’ll impose in the future that will prevent more borrowers from being able to qualify.