Interest rates heading up? Fact or fiction?

The Fed wanted them to stay low till at least 2014. They could creep up before that and IMO they will.

Here is the 10 Year T-Note at 1.89, which has been around that since mid-August.
http://www.marketwatch.com/investing/bond/10_year

The 30 year fixed rate is incredibly attractive right now (and has been), the ability to lock in at an EXTREMELY low 3.79 or sub 4.0 is amazing. This won't go on forever.

In summation, eventually they will go up, but nobody knows when eventually will occur. The point is rates can't get much lower (another 50 BP) and if they did I think people wouldn't care about refinancing/purchasing because the economy would be in deep doo doo.

Higher rates = more rational, stronger economy. Assuming housing acts like a fixed income investment is absurd.

Do you have an actual reason why will they go up?

japanese 10yr is .89% averaged 2.63% from a high of 8.23% in 1990 and a lo of .45% in 03' ... to say our rates will go up may seem logical because they are near all time lows of 1.875% ... but no one can predict the future. if yields sky rocket to 1980's levels, housing will get crushed.

they will go up if the economy starts to grow. But were are stagnating so the Fed is flooding the economy with liquidity. Some are afraid, since the system is flooded with money, inflation will pick up and get out of control. But, without money Velocity or turn over of that money supply nothing will inflate. the money just since there. The Fed is still more worried about deflation as the economy is still delevering. The problem now becomes employment. Without jobs, people will not spend.. turn over money or create money velocity..

dealboy
about 1 hour ago
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Do you have an actual reason why will they go up?

Politics shifting from already tired support of irresponsible excess-borrowing homeowners and back to those 65 and older ... baby boomers just started hitting 65 last year. That group wants higher interest rates on their savings, and lower inflation. Even those many who are property owners would feel more comfortable selling their homes if they could put the proceeds into fair yielding savings instruments b/c they aren't going to be pumping money into equities. And the low interest rates that support equities, they don't care. Expect more town hall meetings with people questioning their representatives about interest rates and inflation, and couple that with distrust of the Fed.

meant: We are stagnating
and: Sits there

sorry

As far as the Fed's 2014 statement, that's not a fact , it's their attempt to jawbone the market. Beyond that, what rates do is anyone's guess.

jawbone is an attempt to increase the V in the equation of exchange since increasing the M doesn't seem to be working

Correct. All the Fed has accomplished is transfer funds from saver to bank and drive funds to risk assets(e.g.financial speculation)

So if interest rates move higher what happens to all the debt our government owes? Doesn't our government have to borrow money now just to pay the interest we owe?. What happens to all the homeowners who have variable rates but can't refinance because they are either underwater or just can't refinance due to the fact banks are making it very difficult?

The Fed can control all interest rates(not just the short ones as we were taught in class). With QE they could buy up any maturity they want and drive down the interest rate. I doubt the Fed will push for higher rates, until either inflation proves to be out of control or the dollar starts tanking, and both are not on the immediate horizon. Of course, if you are worried about a mortgage reset keep in mind that the option to refinance may not be yours and you could get locked out of the market, so why go fixed?

"What happens to all the homeowners who have variable rates but can't refinance because they are either underwater"..

look whats happening to them now.... here are the keys... I am out!

So if interest rates move higher what happens to all the debt our government owes? Doesn't our government have to borrow money now just to pay the interest we owe?
taxes go up... or think Greece, Spain

>look whats happening to them now.... here are the keys... I am out!

Really? Where?

>What happens to all the homeowners who have variable rates but can't refinance because they are either underwater or just can't refinance due to the fact banks are making it very difficult?

2012 is already 5 years after the peak, and therefore longer than that from the average variable rate loan. We are quickly stopping caring about solving problems for people who made mistakes in 2005.

No home owners don't hand over the keys because the rate goes up, they hand over the keys because the home is under water. If the home has equity but the mortgage becomes unaffordable they sell. That said, today banks are qualifying not on the teaser rate but on a stressed interest rate.

Nobody new is handing over keys. 2-3 years ago, sure. Today, no. 3 year ago, "everyone was doing it; banks are evil". Today, "irresponsible loser".

"the Fed can control all interest rates(not just the short ones as we were taught in class). With QE they could buy up any maturity they want and drive down the interest rate"

Of course they can after all who is going to stop them.

you also have to figure in that banks havent been making risky mortgage loans since late 2008 so a lot of weak/ highly levered owners have already been taken out.

@dealboy

I believe the economy will grow, rates will then start to go up. Eventually I think the babyboomers will retire and get out, jobs will open up. More jobs, more money and better economy.

I don't have a date, I am just giving you my thoughts.

For people who want to buy or refinance, I think you have time to act. I just don't think rates could get much lower than they are now.

If the government wants to spur a private market for mortgages they will need to increase the fees on guaranteed mortgages as today's low tax payer subsidized rates are below what the free market can deliver. Today's mortgages for those who qualify are as good as it gets.

>Eventually I think the babyboomers will retire and get out, jobs will open up.

More will retire if they can be confident in higher interest rates on their savings accounts.

http://www.barackobama.com/life-of-julia/

Whatever happened to Julia? She seemed to stop posting at the same time that alanhart and aboutready decided to leave streeteasy.

"So if interest rates move higher what happens to all the debt our government owes? Doesn't our government have to borrow money now just to pay the interest we owe? What happens to all the homeowners who have variable rates but can't refinance because they are either underwater or just can't refinance due to the fact banks are making it very difficult?"

That is not how it works. The gov't borrows at fixed interest rates. Nothing will happen if interest rates increase. The market value of the existing debt decreases if interest rates increase. The gov't could then pay down debt by going into the market and outright purchasing it (if they wanted). Interest rates going up actually helps the gov't in that way. Their investment portfolio would be increasing (assuming it is in shorter, more liquid investments) while the value of the debt portfolio remains the same. Future borrowing would be more expensive, but you are offsetting it with higher bond returns (meaning higher tax receipts assuming no change in tax rates).
Homeowners don't care about the absolute level of market rates (unless their mortgages are tied to it and then, it's only on a specific date/timeframe), but affordability is based on their current mortgage rate. If i-rates are 10%, but my mortgage is 2%, as a borrower, I like that because I have essentially shorted the mortgage market to my benefit. The value of the debt is lower than when I created it, while my current market investments/salary is higher due to the increased rate. For variable rate debt, unfortunately, buyers expose themselves to interest rate and their own credit risk when using that product.