On December 12, 2012, CNN Money published an article by Hibah Yousuf, entitled, The Next Big Opportunity; Bond Bubble Bursting. The article explains how three of the world’s biggest investors agree that the next big money-making opportunity will arrive when the bond bubble bursts and interest rates rise from their historic lows.
David Rubenstein , billionaire and co-founder of the equity firm Carlyle Group, the founder of Bridgewater Associates, Ray Dalio, and Stephen Schwarzman of the Blackstone Group, all agree that bond prices are destined to fall, though none could predict exactly when that might happen. However, when it happens, falling bond prices will inevitably drag down Mortgage Backed Securities, thereby catapulting bond yields and mortgage rates upwards. And that change could come quickly and dramatically.
Federal Reserve policies have kept interest rates low since 2008. However, change is on the horizon. We’re already seeing pressure on rates to rise. And The Federal Reserve announced during their December meeting that it will begin reversing its easing policies when the job market improves substantially, when the unemployment rate falls to 6.5%, or when inflation exceeds 2.5% per year.
While the article focused on investment opportunities over the horizon, we can infer how these events will affect real estate and the mortgage market: Expect mortgage rates to rise at some point during 2013.
What does this mean to prospective home-buyers, especially those sitting on the sidelines, biting their nails, and waiting for the “right time” to buy?
Carpe Diem! Seize the Day!
While no one can tell for sure what the future holds for home prices and interest rates, this is for certain: Interest rates right now are already rising from their all-time lows. And according to a recent statement released by Zillow, 2012 home values nationally have increased an average 6% from 2011, the first increase since 2006. History has shown us that those who try to perfectly time the market ultimately fail to do so. Therefore, if you’re contemplating a home purchase, there’s no better time than the present.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.