If history is a guide, mortgage rates are likely to decline in the short term after the Federal Reserve ends the quantitative easing program.
That is the view being expressed by Barry Habib, the founder and CEO of MBS Highway, who was a featured speaker at the recent Regional Conference of Mortgage Bankers Associations in Atlantic City.
After the QE1 program ended, the yields on the 10-year treasury went from 4% down to 2.5%. A similar thing happened after QE2 and Habib believes it is likely to be the case when QE3 ends as well.
There is a connection between stocks and bonds, Habib has said over the years. When money flows into the stock market, bonds yields typically rise.
However he sees stocks right now as "pricy" and due for a correction. When the money stops flowing into stocks, investors turn to bonds, driving prices up and yields lower.
That is not to say rates won't start to rise eventually. Habib predicts rates will to be higher by the end of the year.
But in the short term, namely the next few months, rates are likely to move lower.
There are other conditions which make the short-term environment favorable for mortgage originators. There is a marketing opportunity aimed at those who currently rent homes, as well as the over 26 million homeowners who do not currently have a mortgage on their property.
Meanwhile, household formations are growing at a faster pace than the number of new homes entering the market. This will continue for the next four years he says. This shortage of new homes will help to support current price levels.
Another source of pent-up demand for housing: the six million 25 to 34 year olds who live with their parents. This group is starting to enter the marketplace and it is a good thing for mortgage originators, Habib says.
Taken altogether, this is a sales opportunity for mortgage originators. If rates increase 50 basis points by the end of 2014, it would increase the costs on a $240,000 mortgage by $4,800.
Furthermore, by not moving now, the borrower would lose $18,000 in potential appreciation. The housing shortage will cause bidding wars and the loss of $15,000 in what Habib terms negotiation savings.
The total benefit to the consumer by moving into the market now is $37,800. Nobody quantifies what the consumer could save using information like that. That is the opportunity for today's loan officer.
Typically, loan officers discuss rate and not loan amount. Instead, speak to your customers about how they can utilize their mortgage and any savings (and the doubling of those savings over time) to help give them a more secure financial future, he says.