Mortgage Advisor, Mark Robertson shares his expert opinion on one of the most asked questions in the lending industry. When should we expect interest rates to go up?
I believe that when the economy recovers, rates are going up. Even now, anytime good economic news hits the media, we generally see a spike in rates. We saw a good example of that recently when the bank Stress test results were released in mid March. The stress test was part of the new regulatory measures put in place as a result of the mortgage melt down. The results of the test showed that banks were, for the most part, very healthy.
As a result, interest rates spiked substantially, almost a quarter of a percent in 2 days in some cases. From that point, rates have been steadily trickling back down to their current point. I use this example above to illustrate a point.
While good news causes a noticeable increase in rates (especially when it is substantial news), bad news doesn’t have the same affect. Rates may go down a bit here and there, but they don’t “plummet”. This leads many to think that rates aren’t going down much more if at all. They will however, increase as the economy begins to heal and recover if news such as the above example is any indication.
Other than recovery of the economy, which may be long and slow, another driving force behind a rate increase is inflation. Reports from the fed and many economists are that currently inflation is in check. If inflation starts to rise, then the fed will likely raise borrowing rates. Many believe that inflation is a threat due to the money the government used to help stimulate our economy. If the supply of money grows faster than the economic growth, inflation is likely. I think that’s one of the main reasons we are all watching inflation so carefully. At this point it doesn’t appear to be an issue.
I think rates will likely stay pretty low, with a slow steady increase over the next few years. We’re likely to see volatile spikes up and down along the way.