Interest Rates Down Year-Over-Year! (Headline One Month Early)

Casey Fleming

It’s starting to look like the above headline is something you’ll see before the end of June. Interest rates have continued to fall despite the Federal Reserve continuing to back off on purchases of Treasury Certificates and Mortgage-Backed Securities.

Rates have broken through and stayed below the range they've held most of 2014.
Rates have broken through and stayed below the range they’ve held most of 2014.

On May 7th I wrote that interest rates seemed to be breaking out of a long, very narrow range toward the downside. Well, now it’s official – they have broken through and are continuing down.

Economic growth is slowing down for sure, but we don’t appear to be headed for a recession. What gives, then?

As I’ve said before many times in this column – go back to the basic supply and demand curve in Econ 1A. Demand for mortgages is way down, so lenders have to do something to keep their businesses going. As I reported earlier, there were over 30,000 mortgage production folks laid off in late 2013 nationwide, 22,000 just from the big banks alone.

There’s no good way to track “voluntary” layoffs – those folks on 100% commission who are quitting the business – but anecdotally that number could easily double the exodus.

But there’s only so far that cutting staff will go. Whenever supply exceeds demand competition puts pressure on margins, and that’s what you see happening now. Lenders are cutting their margins – which you see as lower interest rates – in order to steal business from other lenders.

Interest rates in 2014 may soon be lower than 2013.
Interest rates in 2014 may soon be lower than 2013. Blue is 2013; Red is 2014.

How far down can we go? Look at this chart comparing mortgage rates in 2013 with rates now.

No one expects to see a return to the lows we saw in Spring of 2013, but then no one foresaw them going as low as they are now. Most analysts agree it would be madness to assume rates will drop below there they are now. They could be wrong, of course.

I’ll keep tracking…please watch this column.

Casey Fleming, Author of The Loan Guide: How to Get the Best Possible Mortgage

You can find the book on Amazon here.

Mortgage Advisor, C2 Financial Corp

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