Reply to Where will mortgage rates go in the next 1-2 years?

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[quote=Anonymous][quote=Anonymous]if anyone KNEW this, they'd be a very good rates trader and worth a gajillion dollars. No one knows. Everyone guesses.

the "mortgage rate" for conforming mortgages is a combination of a few things

1) the prevailing ~10 year treasury rate. 
2) the spread above  the 10 year rate at which mortgage backed securities trade

Both 1 and 2 are not predictable with any kind of precision. anyone who tells you they KNOW is overconfident.

So what would be my best guess over the next 1-2 years? I don't know, but we can tell what "the market" is predicting. I'm not 100% sure I'm looking at the right thing, but  the 10 yr 2yr forward starting swap (ie the market's prediction of where the 10 yr swap rate, which is closely related to the 10 yr treasury rate, will be in 2 years) is approximately 4.3%. For context the 10 year swap rate now is 3.9%. So the market is saying that intermediate term risk free rates will likely rise by approximately 0.4% over the next 2 years.

So that leaves mortgage spreads. Right now they're historically high, as the Fed has stopped subsidizing mortgage spreads (they stopped buying mortgage backed securities). I'm not gonig to spend time on it or make a prediction, but I'll just say that if I had to GUESS, mortgage spreads MAY come in a little bit (this is a complex topic) from their historically high levels.

So I'd probably say the base case is something like "about where they are now" with 10 yr rates going up and mortgage spreads coming down.

But this all depends on a million unpredicatable things. Many highly intelligent hard working people who do this for a living will get it wrong.

So just do what makes sense with the information you have. Don't try to predict rates. 
[/quote]

Probably the only accurate post in this entire thread.[/quote]

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