Daily Profit Cycle: Are Mortgage Rates Headed to 20%?

The housing market has been slammed in the past few months. 30-year fixed-rate mortgages, the industry standard, now yield over 6 percent. That’s double off their lows from just over a year ago.

Some see rates continuing to rise as the Fed continues to raise interest rates this year. There’s a possibility that rates will be closer to 7 percent by the end of the year. But if the Fed overshoots, it’s possible rates head even higher – possibly to 20 percent!

While that may sound impossible, it’s in the realm of probability.

Many see the housing market as robust. That’s because we’ve come a long way since the Great Recession. Homebuyers have tighter lending standards.

And home equity is at an all-time high, making it harder for homeowners to get underwater on their mortgage if home prices decline.

However, with no end in sight yet to the interest rate hikes, it’s possible that mortgage rates could continue to creep up. At the current rate of increase, they could even end the year closer to 8-10 percent.

In the meantime, banks are keeping excess cash on hand with the Federal Reserve, where rising overnight rates are yielding banks higher yields with no downside risk.

That could cause rates to go even higher as capital for mortgage rates gets sucked out of the market as it moves to safer places.

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