Saturday, February 23, 2008

Why are interest rates higher?

Welcome to my spot on the web. For all you buyers in Baltimore I hope this little spot will help educate you while you house hunt. Today I wanted to discuss why rates have climbed so much in the past week. Many banks and brokers are now over 6% for a 30 year fixed.

The reason this is happening is because of the bond market. the bond market is basically now starting to ignore the FED. Usually mortgage rates drop when the FED drops rates. This for the time being has changed.

The bond market however is a smart bunch and they are now worried that home prices might drop on a national basis. If you want to see where rates are heading you need to watch CNBC and look at the 10 year rate. There was a massive spike upwards this week in the 10 year which has resulted in a big jump in interest rates. So in closing look at the 10 year when you are trying to predict where rates will go.

I expect housing to drop 30-40% based on the change of lending standards in combination of higher interest rates. As a result I recommend anyone that is looking for a home to wait at least another year.