The average mortgage rate per Mortgage News Daily is around 6.1% as of Tuesday, Feb 10th (I am typing this blog early because I will be traveling).
In December (when the average rate was close to 6.3%), I predicted that rates would drop to 5.5% this year, and I am sticking to it.
And – if they do drop that much, the mortgage industry will BOOM!
This is because there will be over 5 million mortgages eligible for refinancing if rates merely fall below 6%, but millions more will become eligible at 5.5%.
In addition, we see purchase volume heat up significantly every time rates drop a mere 1/4%; a 3/4% drop will be epic.
So, no, I don’t want to make light of job losses or unemployment, but they do ironically often prove to be a boon for the real estate and mortgage industries.
Reasons Why I Think Rates Will Keep Falling
- Soft Job Market Data Continues to Surface: New job openings have plummeted (almost 500,000 over the last month, and almost 1 million over the last year). In addition, manufacturing jobs fell, the Employment Cost Index (something the Fed focuses on) is down, and private sector (ADP) job creation reports are weaker than expected.
- Inflation Is Way Down: “Truflation” is showing inflation at only 0.68%!
- Weak Economic Reports: Rates are falling as I type this blog because retail sales figures for November and December are coming in much weaker than expected.
Note: Two extremely important economic reports will surface this week.
- The BLS Jobs report will come out tomorrow (from my perspective) or today (from the readers perspective), and analysts believe it will show a soft job market too – bringing rates down further. BUT – even if it does not, the BLS reports have proven to be very unreliable, as I have discussed many times. The other reports (ADP, Employment Cost Index, Job Openings) mentioned above prove to be more accurate – and the BLS and the markets will adjust to reality at some point.
- Consumer Price Index (CPI) inflation will come out on Friday, and analysts expect a cooler CPI report too. But, CPI reports tend to be much less accurate than “Truflation” reports, so even if CPI does not cooperate Friday, Truflation reality will eventually catch up with CPI too.
Both the Fed and the bond market focus heavily on the labor market and inflation – and cooler reports on either front bring down rates.
Long story short: I will not be surprised at all to see 5.5% this year.
