AgentIndustry News

Real estate rates could hit 7% by summer

Fed's inflation fight gets more complicated
Published on Mar 10, 2006

The high for mortgage rates in '03, '04 and '05 was 6.5 percent; we're almost there, and likely to rise above. The word "seven" may be in vogue by summer. February employment data confirmed a solid economic expansion underway, and a new pattern of wage growth on top of energy-price pressure is pushing the Fed from a neutral rate target toward a restrictive one. Late in all Fed tightening cycles the bond market comes to the depressing conclusion that the Fed will keep going forever. It won't, of course, but a market convinced that the Fed would almost be done at 4.75 percent on March 28 now faces a sure-thing 5 percent in May, a probable 5.25 percent in June, and an ultimate stopping point higher than that. Those rates are not priced into today's mortgages. One year ago Fed Chairman Alan Greenspan (remember him?) gave us "conundrum" to describe the peculiar behavior of long-term rates, which for the first time remained stable during the beginning and middle phases of a cycle of Fed rate...