The Federal Reserve bought up another $7 billion in U.S. Treasury securities on Monday which, as my finance students know (or should know because it will be on the final), demand for the securities caused the price to go up and the yield to go down. The Fed’s goal was to lower borrowing costs in an effort to stabilize the economy and boost consumer confidence.
The evidence so far is that the Fed’s efforts are working, as rates have been held down for an extended period and consumer confidence is beginning to rise. The challenge, however, will be to maintain that confidence when rates begin to rise.
And they will rise. Big time.
Now it is always dangerous to predict interest rates, although my standard prediction that they will continue to move to the right seems to be holding. But I will go further out on a limb and say there is no way on Earth that long-term rates can stay this low for much longer. The Fed simply cannot keep the tide back forever using buy-back strategies. Eventually, market forces will kick in and rates will have to rise. And if you look at where rates are now compared to historical levels, you will find that we have been at historical lows for an extended period.
So what does this mean for us? Long-term borrowing costs will rise soon, which will translate into higher mortgage costs.
Yep. I’m back on my kick about telling potential purchasers that mortgages are about as affordable as they can be. If you are on the fence waiting for the absolute lowest mortgage rates, I think you are there. Some might be able to get lucky and catch a downward spike in rates, but most will be looking at higher rates soon and wish they had acted earlier.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
