Long Term Interest Rate View – Opposing Views

Casey F.

Where will interest rates be in 2017? (This graphic does not appear to correlate closely with the actual projections.)

I write about interest rates a lot, because folks seem to want to know. In my experience, it’s not hard to be right most of the time when projecting out, say, 24 hours or so. Beyond that things get quite murky. We still try, but really who knows?

So it must have been pretty interesting at the Mortgage Bankers Association (MBA’s) National Secondary Conference this week when the Chief Economists from Fannie Mae, Freddie Mac and the MBA were asked where they thought interest rates would be – next year!

So a trio of high-octane folks who obviously should be in the know should come up with fairly similar views, since they have access to all the same data and the same analyses, right?

Not quite.

Doug Duncan, Fannie Mae’s Chief Economist, called for the conforming 30-year fixed-rate mortgage to decline by 15 basis points to 3.7% (15 basis points means a decline of 0.15%.)

Meanwhile, Sean Becketti, the Chief Economist from Freddie Mac, expects a 23 basis point rise in interest rates to 4.08%.

Mike Fratantoni of the MBA, meanwhile, split the middle and predicted a rise in interest rates of only 10 basis points to 3.95%.

Of course, they are talking average rates for the entire year, which has little bearing on the rates on any given day. But they are presumably “in the know” more than, well, anyone else on the planet. So it might be worth paying attention.

If we back up and look at the big picture they really aren’t all that far apart, so they are closer to a consensus than it would seem. To project interest rates a year from and be within 0.38% (about 3/8 of a percent) is pretty darn close.

They did not address the elephant in the room, which is the fact that the Federal Reserve is still buying roughly $25 billion worth of mortgage-backed securities a month, using the cash flow from the securities they purchased before they terminated the QE3 program in 2013. So, while they don’t “set” interest rates, they are still influencing them. Will they continue after the election?

I feel a change in the wind, says I.