By How Much Will Interest Rates Increase?

canstockphoto14466167More than a few lenders have been holding their breath, anticipating a notable increase in interest rates.

They might want to exhale now.

I was surprised to read two new reports that implied interest rates might stay where they are — the US Treasury 10-year is at the wildly low 1.89% — for some time.

The first was from Freddie Mac. The mortgage agency does a weekly review of interest rates, and its most recent report shows mortgage rates continuing on the downward slope that is at least a year old. Freddie has published a forecast for the 10-year of 2.2%. Obviously, that’s not on the mark. Freddie economists see rates rising through the remainder of the year, but the 10-year is not where they expected it to be. Could that portend at least a flatter rate trajectory?

pmms_chart

The second report would imply as such. Here’s how The Wall Street Journal put it this morning:

The long-awaited (and for some, long-feared) rise in U.S. policy interest rates seems to have just been pushed back again. Our Federal Reserve reporter Jon Hilsenrath writes this morning that the Fed may be shying away from raising interest rates in June. A patch of soft economic data has reinforced the view that the economy downshifted in the first quarter and didn’t have great momentum moving into the second. Most Fed officials see the slowdown as temporary, but they need time to ensure a rebound is in store.

This bodes well for auto finance. According to data published in Auto Finance News, the national average rate for auto loans, regardless of credit tier, was 3.4% at the beginning of this month, effectively flat compared to the 3.25% rate a year previous. Rates below 4% constitute “fantastic” prices, and anything below 5% still gets a thumbs-up from consumers. Freddie Mac thinks the 30-year fixed-rate mortgage rate will hit 5% in the third quarter of 2016. Even if the forecast is accurate, 3Q16 is a long way off — which is why lenders should continue to avoid holding their breath.

  Like This Post

    Leave a Reply