‘So, What Do You Think Will Happen with Rates?’
There’s a Recipe to Your Rate
When people find out that I do mortgages for lending, the main question I am asked is, “So, what do you think will happen with rates?”
To understand where rates are going, it’s important to understand the three primary components that make up rates, as well as general market indicators that rate trends follow. In other words: There’s a recipe to your rate, and watch the 10-Year Treasury.
The 10-Year Treasury’s (TNX) movement is fairly simple to understand within its parallel to rates: buying a 10-Year Treasury bond is investing in America for a decade at time; giving you a mortgage is investing in you for decades at a time.
The three primary components that make up rates are a bit more complicated: policy, economic factors, and people all go together. “People” refers to how many people work in that industry and want to provide money, as well as the talent pool that puts it together. Economic factors are as varied as global (tariffs), local (taxes), and other countries’ drama around their own debt — so many complex things that are out of our control. Of all, policy is the primary factor that governs rates, and it is the most volatile this year.
Policy is everything from how much of the bond market the Fed buys to what the loan-level price adjusters are per institution. Lower credit score yielding a higher rate is a loan-level price adjuster, and a policy decision. Fair Lending Regulations require banks to fill different buckets of lending — low to moderate income, affordable housing programs, and the like. Policy can be at the national, regional and institutional level. It’s a lot!
The policy effects of this new year will take a bit to evolve into practice. There is no way we can have higher demand for housing and reduced building costs. We cannot have a super-strong economy and cheap rates. Our community knows that rebuilds take time and people, and that everything has a price.
To me, one of the biggest policy impacts this year is not yet being addressed: that current tax law expires this year. Everything from if you can write off the interest on your home to how much you can get free of capital gains when you sell it is up for renegotiation.
So, when asked where rates are heading, I will tell you to watch the 10-Year Treasury in the day-to-day. In the long term, my answer will be to focus on policy. And about that, your guess is as good as mine.
Austin Lampson is a licensed mortgage professional and branch manager of Origin Point Mortgage. She has spent the last quarter-century helping her clients balance math and emotion to achieve their financial goals. Reach Austin at (805) 869-7100, austin@austinlampson.com, or visit austinlampson.com.
