Author Topic: what are interest rates going to do the next couple months ?  (Read 5897 times)

Offline mountainmoma

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what are interest rates going to do the next couple months ?
« on: December 06, 2016, 06:33:46 PM »
Esp. if any of you more finance knowledgeable people see this....

Background, my eldest is buying a house right now (if the inspections come up clean, so most likely is buying). I had mentioned to her a few weeks ago that interest rates are going to go up, but I dont keep up enough to have a timeline. So far, I am right, and mortgage rates have gone up a small, but noticeable to her tight budget, as her loan guy gave her new estimates today. She and her Husband agreed to a long escrow the sellers asked for, so house wont close until Feb 29th. The bank says the interest rate isnt finally determined until close (or papers drawn up time I guess) and if she wants to lock in, she needs to pay some extra upfront part of a point, which she thinks comes out to be $1000. So, if interest rates are not going to fall and could possibly go up more, she thinks she should do it. As they are broke 20somethings buying a fixer house, $1000 is alot of money for them. But, more important is the ongoing monthly payments. If they fell back down in the next 2 months though ( would President inauguration and after calm the market and lead to a dip ? ) , and she was locked into a rate .5% higher for the life of the loan, that is not good.

So, what are reasonable forecasts on this ? I think over time, like over the year or 2, rates will go up. But, I cant wrap my head around shorter term vaguaries.

Offline bigbear

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Re: what are interest rates going to do the next couple months ?
« Reply #1 on: December 07, 2016, 11:15:21 AM »
I have a friend who hedges risk for Morgan Stanley.  After the presidential election he said to lock in your rates. 

Maybe offer to pay (or pay toward) the $1k as a housewarming gift? 

Offline CPT Morgan

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Re: what are interest rates going to do the next couple months ?
« Reply #2 on: December 07, 2016, 11:34:11 AM »
School of hard knocks graduate here....  .5 percent increase wouldn't bother me and I doubt it will go up more than that over the next few months.  If that was a deal breaker, it would be a good indication that I couldn't afford the mortgage anyway.  One can always refinance down the road if/when rates go lower again and/or they can afford to adjust the length of the loan (i.e. down to 15 or 20 year). 

Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #3 on: December 07, 2016, 11:48:31 AM »
I have a friend who hedges risk for Morgan Stanley.  After the presidential election he said to lock in your rates. 

Maybe offer to pay (or pay toward) the $1k as a housewarming gift?

Yes, this was our conclusion, they are locking in. I cant afford to help, but my ex has stepped up and will be buying/contributing that much at least as house warming, likely a major appliance purchase, plus whatever else he can get away with doing.

Yep, the day after the election, I told her that rates would be going up, and they have a noticable amount already.



( I may talk to my ex, because the major appliance they need the most is a decent wood stove fireplace insert. Which is pricey, and she might not mention this to him, I can let him know, and he can decide what range he is able to help. I mean if Tita ( (granny) his saintly deceased mother) happens to tell him she is worried about the kids staying warm.... they cant say no)
« Last Edit: December 07, 2016, 12:13:09 PM by mountainmoma »

Offline Smurf Hunter

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Re: what are interest rates going to do the next couple months ?
« Reply #4 on: December 07, 2016, 11:52:59 AM »
Rates were going to go up.  All the chatter from financial geeks has been debating WHEN. 

Assuming a POTUS election win by HRC, it was said "they" didn't want to raise rates before her inauguration as a professional courtesy.
Obviously that didn't happen, so we are on a more natural course.

Peter Schiff talks about this exact topic regularly.

We refinanced down to a 20 year loan at 3.5%.  Only saves us $150/month, but we're doubling our equity accumulation schedule.

Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #5 on: December 07, 2016, 12:08:28 PM »
School of hard knocks graduate here....  .5 percent increase wouldn't bother me and I doubt it will go up more than that over the next few months.  If that was a deal breaker, it would be a good indication that I couldn't afford the mortgage anyway.  One can always refinance down the road if/when rates go lower again and/or they can afford to adjust the length of the loan (i.e. down to 15 or 20 year).

If rates go up .5 % in a couple months, that means that the increase in monthly payments would be high enough to add up to the fee amount before a year was out, and then just more loss each month that could have been avoided. Not exact numbers, but for simplicity, say that .5% higher is another $100/month in payment, you would have saved that up front $1000(or so) fee before the year was up. And, $100/month for so many years does add up.


Offline Beetlebum

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Re: what are interest rates going to do the next couple months ?
« Reply #6 on: December 07, 2016, 02:05:27 PM »
The flip side of this coin is that, with a high enough interest rate increase, we could see another housing price crash. The cheap price of financing has inflated the cost of housing. Now that rates area rising, to be able to sell a given house at the same "complete" price will necessitate the home price to be reduced, else buyers won't be able to afford it.

Offline Smurf Hunter

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Re: what are interest rates going to do the next couple months ?
« Reply #7 on: December 07, 2016, 03:17:03 PM »
The flip side of this coin is that, with a high enough interest rate increase, we could see another housing price crash. The cheap price of financing has inflated the cost of housing. Now that rates area rising, to be able to sell a given house at the same "complete" price will necessitate the home price to be reduced, else buyers won't be able to afford it.

Another aspect to consider besides the rate, is access to credit.  Prior to 2008, all sorts of unqualified clowns got approved to borrow amounts they had little chance of repaying.
Now that lenders are more discriminating about who gets a mortgage, you have a smaller buyer pool.

Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #8 on: December 07, 2016, 05:02:24 PM »
The flip side of this coin is that, with a high enough interest rate increase, we could see another housing price crash. The cheap price of financing has inflated the cost of housing. Now that rates area rising, to be able to sell a given house at the same "complete" price will necessitate the home price to be reduced, else buyers won't be able to afford it.

yes, in some places this will happen, prices could fall a bit. But, some places the demand is increasing, so the worst (best ? depending which side of the sale you are on) is that price will rise slower or stay similar.

This part is a bit of a guess, or a know your area thing, baring severe country wide economic collapses. So, in her area of the country, we have been seeing prices rise more than they should because it is overall more affordable than other areas, so people, especially people retired or who work remotely or passive income, etc...., have been moving there from much more expensive housing markets. These people find the prices so affordable in their minds, that they have been overpaying and driving up local prices a bit. We think this trend is going to continue. Although, prices could also effect downward due to rising interest rates or overall economic depression. These new residents with "set" retirement or other incomes do make it hard for people who are drawing the relatively low local incomes that this area offers.

Offline iam4liberty

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Re: what are interest rates going to do the next couple months ?
« Reply #9 on: December 07, 2016, 05:36:10 PM »
Last time we were mortgage shopping our credit union offered 45 day rate locks for free and 60 day rate locks for about a quarter point.  Catch was that rates didn't adjust down if interest rates fell.  Is this in the ball park of what they are asking?  If not it might be worthwhile to shop around some more.




Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #10 on: December 07, 2016, 05:58:31 PM »
Last time we were mortgage shopping our credit union offered 45 day rate locks for free and 60 day rate locks for about a quarter point.  Catch was that rates didn't adjust down if interest rates fell.  Is this in the ball park of what they are asking?  If not it might be worthwhile to shop around some more.

It is the same for them, they need a 75-80 day close, due to sellers request as part of the home price bargaining.....of course, she didnt realize this when agreeing to the extra long close. Maybe she will request something after inspections to make up for it

Offline CPT Morgan

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Re: what are interest rates going to do the next couple months ?
« Reply #11 on: December 10, 2016, 11:38:53 AM »
If rates go up .5 % in a couple months, that means that the increase in monthly payments would be high enough to add up to the fee amount before a year was out, and then just more loss each month that could have been avoided. Not exact numbers, but for simplicity, say that .5% higher is another $100/month in payment, you would have saved that up front $1000(or so) fee before the year was up. And, $100/month for so many years does add up.

Back to my previous statement then...  maybe they are buying out of their budget?

Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #12 on: December 10, 2016, 12:51:22 PM »
Back to my previous statement then...  maybe they are buying out of their budget?

No. But, this is very individual, different people have different comfort levels of debt/income, or might wait until they had more savings.

Off topic on interest rates :

but these guys are financially conservative in their own way. So, they decided to wipe out ALL student loans and credit card debt immediately, and save less. So, they are 20something, married 2 years, and have paid off both of their not insignificant student loans and credit cards (except he seems to put stuff on the darn things still, so I guess small balance paid off every few months....). My daughter has a credit rating over 800. Right now they both are working, they do not make much money, as that area does not have very high salaries at all, and they are young, her husband only being 3 years in his profession/job. They do not have the extra money some people in more urban areas feel more comfortable with, but they are also used to keeping expenses low. And, they live in an area were their jobs are considered good jobs, and most people are in their income range, and many below it. They feel the disparity only realy when comparing to their cosmopolitan friends in Portland or down here in the silicon valley/ San Francisco area and when visiting.

They both spent years before they were married, unable to find "real" work, they were college graduates when the market crashed and this recession began. They both worked for years at part time jobs of whatever they could find. But, they did take those jobs and work. Coordinating a couple part time jobs. Mine was part time at home depot and part time at a lower paying more interesting place. ( My middle child is also doing this. Even now, and it is typical for young people. He works 2 part time jobs, one 20 hours a week, and the other he works remotely for 10 hours a week. The 10 hour a week gig is what realy pays his bills, and they even pay him if he needs to put more hours on their needs, as they should. The other job has been taking advantage of him, the only part timer there, and giving more work than can be done in those hours, and he has been giving them unpaid hours, and his pay there is way lower than the other gig. He is pushing back, he will work it out with them. He is healthy and happy and well balanced and uses the "extra" time to meditate, volunteer, go to the gym, hike, etc... This is reality for many young people. So, maybe they will have different ideas of enoughness and security than older folks as a generational trend ? I dont know, we will see. )

The house buying couple actually put more thought on this than many their age, or older, even if their decisions or values are different than others would do. They do not want to have payments too high on a house because of potential income reductions. They plan to have a family, and they also have this experience on how hard can be to have decent paying work. They know they can qualify and buy a house now, but would not qualify for a loan on the one income, so they do not want to save longer to not be able to have a house at all. And, yes, the worst case projected budget (ie., what if they have a child sooner than planned and his income is as it is NOW and she doesnt work for at least a few years. or ten. What if salaries freeze for him and she cant find even part time work ? ) so, this projected worst case budget would be very, very tight. Something many might not do. But not something that they, with a roof over their heads, a wood stove insert in an area of abundant logging waste, a handy hard working young man, a young woman who takes joy out of providing via a garden, canning and cooking homemade, even this worst case budget is not daunting to them. They waited until they found a place that is a half acre lot in town, in a nice neighborhood. There is alot there to do and as resources in the yard, and in the town around them that dont need money or a long distance to get to. For them, this is better and more stable than money in the bank, although, of course, they wish they had more money in the bank. This is all value calls, judgement calls. There is actually a large, public park, with hiking trails in the woods, playgrounds, public pool. etc....that has its border a block and  half from this house. The elementary school, public library, banks, stores etc.... are a little past the other end of this park, so within a mile of the house. They almost bought out of town on a full acre, or in town on a smaller lot. They could have spent less money on a house, just to have a house of course. But, the differential on price was not much at all. And, the work to update their place will be done on current income, or not done if things change, and they are young and able, they can do most of their own work. So, maybe you would buy a house for 1 or 2 hundred less in payments a month, but it is worth it to them to have a house that they can grow their own food to a large extent and not pay alot in trasnportation or entertainment, if time get tough ( or even if they dont ) no they dont listen , she just grew up in this house.
« Last Edit: December 10, 2016, 01:19:00 PM by mountainmoma »

osubuckeye4

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Re: what are interest rates going to do the next couple months ?
« Reply #13 on: January 06, 2017, 12:43:08 PM »
The flip side of this coin is that, with a high enough interest rate increase, we could see another housing price crash. The cheap price of financing has inflated the cost of housing. Now that rates area rising, to be able to sell a given house at the same "complete" price will necessitate the home price to be reduced, else buyers won't be able to afford it.

That's really what I'm banking on.

I also live near Chicago though... we have the triple whammy of insanely high property taxes, a diminishing population base (high earners are leaving the state by the tens of thousands), and rising interest rates.

Very high likelihood that prices around here plummet in the not so distant future (12-18 month window).

It really stinks because the wife and I have enough saved up and the credit to make the move now... but, it just doesn't make sense to pay the types of prices that are being asked for when the writing on the wall is so clear in regards to what is going to happen.

We're just socking away money every month so that when the bottom does fall out, we'll have the cash to swoop in and capitalize.



All of that said... the best laid plans don't always work out and there's a chance I'm wrong and this can gets kicked for years instead of months.

Additionally, my strategy is based on location. If you lived out in the Denver area and were taking my approach, you'd most likely be very sorry. Huge demand for housing out there, even if rates shoot up the demand will still be there.

Offline mountainmoma

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Re: what are interest rates going to do the next couple months ?
« Reply #14 on: January 06, 2017, 01:06:28 PM »
Yep, maybe housing prices will at least stabilize with slightly rising interest rates.

My eldest and her husband had this house deal fall apart after inspections  :'(  Roof turned out to be totally shot and the seller wouldnt do the roof. They continue to save, she has gone to extreme meal planning/homemade, healthy but no waste and inexpensive, etc... on not buying "stuff" and maybe something will come up in the spring

But, if the rates go up more, then yes, young couples like this will have to have prices fall to be able to make payments on the same house, so I think the seller doesnt see what the market trends are at all. Just greed. Seller only owned the house for 3 years, didnt fix the roof, didnt even clean the gutters and got dry rot, didnt improve or even keep the place up, but has a number in mind of profit she wants to get out of it. As Jack says about buying houses, you cant let your emotions take you to making a wrong business decision on price, so my young couple had to walk away, slighty broken hearted, but it was the right business decision

osubuckeye4

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Re: what are interest rates going to do the next couple months ?
« Reply #15 on: January 06, 2017, 01:13:59 PM »
Yep, maybe housing prices will at least stabilize with slightly rising interest rates.

My eldest and her husband had this house deal fall apart after inspections  :'(  Roof turned out to be totally shot and the seller wouldnt do the roof. They continue to save, she has gone to extreme meal planning/homemade, healthy but no waste and inexpensive, etc... on not buying "stuff" and maybe something will come up in the spring

But, if the rates go up more, then yes, young couples like this will have to have prices fall to be able to make payments on the same house, so I think the seller doesnt see what the market trends are at all. Just greed. Seller only owned the house for 3 years, didnt fix the roof, didnt even clean the gutters and got dry rot, didnt improve or even keep the place up, but has a number in mind of profit she wants to get out of it. As Jack says about buying houses, you cant let your emotions take you to making a wrong business decision on price, so my young couple had to walk away, slighty broken hearted, but it was the right business decision

We had something similar happen to us.

We were looking at a short sale, made a reasonable offer... seller immediately accepted.

Went in for the inspection 3 weeks later... NIGHTMARE. So much DIY electrical work, it was going to cost at least $10,000 just to bring the home up to code and go to bed every night without worrying about an electrical fire in our sleep. As we looked around, we also noticed that in the 3 weeks between the offer and inspection, numerous minor problems had surfaced (leak in the bathtub that wasn't being tended too and was running down the walls to the basement... landscaping nightmare... gutters completely full of gunk and left sitting, cracks in the patio, someone wrote all over one of the bedroom walls, another room had carpeting ripped up and was down to the floorboards, etc.). If we were closing right then, it wouldn't have been an issue (take care of it right away). Waiting a month to close? Some of those would have cost thousands of dollars to remedy at that point... and who knows what else these people were going to do, or not do, over that month to the home.

I made a counter of $20,000 less than the initial offer and cited all the repairs that I would have to do. It truly would have been a break even for me because there was $20,000 minimum to sink in to make it livable. Bank pretty much told me to eff off. We unfortunately had to walk away. It was a great opportunity, but the seller refused to make any kind of improvements and the bank said that it was "as is" (even the parts that were clearly not up to code).

That's really what bothered me more than anything. The bank allowed these people to live in what was essentially an electrical death trap. I mean, if that house had burnt down, that would have been a heck of a lawsuit against the bank because we had dozens of pages of inspection report citing all of the poor wiring/code violations.

I did keep an eye on it... it ended up selling 2 months later for $8,000 more than we had offered. I hope that buyer hired a good inspector and knew what they were getting themselves into.  :-\
« Last Edit: January 06, 2017, 01:20:43 PM by osubuckeye4 »

Offline Smurf Hunter

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Re: what are interest rates going to do the next couple months ?
« Reply #16 on: January 06, 2017, 01:37:23 PM »
recently refinanced into a 20 year @ 3.5%, from a previous 30 year @ 5%.

While we were 9 years into the 30, this only nets us  $150 less each month, BUT our equity schedule will nearly double soon.

Rates will go up while we have this new mortgage.  I'm not sure how much it matters if it's 30, 60 or 90 days from now.