Barring a national tragedy, one business journalist sees moderate rate increases this year -- with little risk from pending adjustments to exotic adjustable-rate mortgages.
Knight Kiplinger forecasts a "Goldilocks" economy for the U.S. -- not too hot, not too cold -- with "moderate interest rates that won't choke off housing sales" or "tank the economy."
Kiplinger, an economic journalist and business forecaster, recently answered some hot topic questions during a conference call with Mortgage Market Guide's CEO Barry Habib and national sales trainer Sue Woodard.
Forecasting 30-year fixed rates at seven percent with zero points this fall, Kiplinger suggested the moderate rates would benefit homeowners that might otherwise be tempted to opt for riskier loan products. "If it put people in the fixed rate 30-year instead of exotic programs, that's good, they should be there anyway," he commented.
Woodard noted that about $2 trillion of those exotic ARM products are about to adjust and asked Kiplinger what impact this might have on the economy.
"We don't see a foreclosure crisis," he said. "When they adjust most people will be able to handle it well, tighten elsewhere; our economy will grow slower and people will cut back on shopping, dining out, travel."
Although, consumer spending will slow across the board with a decline in home and auto sales and a softening in home prices, he said he didn't see a recession brewing in the U.S.
And as the housing market is seeing fluctuations from coast to coast, he explained, some areas are seeing declines while others are rising such as; Kansas City, Nashville and Seattle.
Overall, the blended average is about a three percent increase this year, down from last year's 12 percent, he said; noting that some investor speculator's might be unable to recoup their investments right now with the softening markets.
Regarding continued rate hikes, Kiplinger said he felt as if the Feds were on the right track but would like to see the rates come to a halt. "Bernanke sees inflation where others don't ... he is an inflation hawk," he said. "We think there is a 50/50 chance they will tighten once more in August."
In an effort to better understand forecasting rate cycles for mortgage clients, Habib asked Kiplinger what his thoughts were on how to best understand when rates might move.
Kiplinger said the Fed is probably going to leave short rates in the present range for some time and would be motivated to move them only due to crisis, such as the September 11th terrorism attack or a natural disaster.
In addition, Kiplinger explained the reason the Fed needed to get short rates back up to traditional customary levels is that in the event of a geopolitical crisis, they would have the capability to respond economically by stimulating the economy with lower rates.