Another failed economic prediction - Interest rates - real estate

Posted by Jace Stolfo on Wednesday, June 23rd, 2010 at 1:02pm.

In case you hadn't heard, interest rates are at a record low today.  A conventional 30 year fixed-rate is as low 4.375% (1)!

Perhaps you recently heard from your Realtor, lender, or the national news that interest rates were going to rise.  Around March it seemed to be one of the top headlines in the real estate industry and it has turned out to be another classic example of why I DON'T put much stock in economic predictions.

Here's just a few I had read:

"Rates are going to be higher than they are now," Jay Brinkmann, chief economist for the Mortgage Bankers Association told CNNMoney.com.

“Mortgage rates are unlikely to go lower than they are now..." Christopher J. Mayer, a professor of finance and economics at Columbia Business School (NY Times).

"Clearly, when they stop printing all that money, it's going to be a shock to the system. I have to assume that when they pull back on it, it will cause a 100- to 200-basis-points rise" to rates of 6 percent or 7 percent, he said. "When they start selling off the stuff they purchased, which by my guess would come early next year, that would cause another 100- to 150-basis-points rise." Christopher Thornberg, principal at Beacon Economics in Los Angeles told the San Francisco Chronicle.

Nearly all economists had seemed to agree that when the Fed ceased purchasing mortgage backed securities in March that this would undoubtly force rates higher (among other factors).  The logic made sense. But the reality is our economy is so complex and dynamic that no one really knows.

I don't write this blog saying rates are going to stay low or that they'll go higher.  I'll leave that up to you to decide.  I just find it interesting that even after years of failed predictions that so many people boldly make (or repeat) economic predictions as though they are a matter of fact.  It's especially troublesome when I hear those opinions used as pressure tactics, not by the economists, but by agents or lenders who repeat them (e.g. "you better buy now... rates are going to go up").

1) Source: Boise US Bank Branch. Subject loan underwriting requirements

Information not guaranteed & subject to change without notice.

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