"The debt crisis is probably the biggest factor hanging over mortgage rates at the moment," says Guy Cecala of Inside Mortgage Finance. "Once investors feel there is any uncertainty about the U.S. government’s ability to guaranty its debt, Treasury rates and mortgage rates will start to rise – probably by at least 25-50 basis points."
That's the clearest answer I've gotten from the many experts we've had discussing this on CNBC today. Most just say, "We can't know." I've been arguing that the debt crisis is not as big a deal as the scheduled drop in the conforming loan limits at Fannie Mae, Freddie Mac and the FHA. Experts say the change from the $729,750 limit in the highest priced markets to $625,000 and the drop back to $417,000 in lower-priced markets will really only affect 5 percent of homes nationally, but the percentage is far higher in certain local markets.
"But some FHA borrowers will be pushed towards the Fannie/Freddie market and higher down payments since the FHA loan limits don’t bottom out at $417k (like the GSE limits do)," reminds Cecala.
While we all worry about what that lowest rate can be and where, the fact is that while the "average rate" on the 30-year fixed is very low, today's buyers are not all eligible, especially as those rates require big down payments and super-clean credit.
"Those people are not qualifying for the super low rates now, and 30 percent of our sales now are to cash buyers, investors and foreigners, anyway," notes Shari Olefson of Fowler, White, Boggs, who argues we're missing the point.
"The bigger issue with those rates, other than housing and the crisis, is going to be the adjustable rate mortgages. If the rates go up, we are absolutely going to be seeing more defaults and more foreclosures as a result of those adjustable rate mortgages."
And that's just what we need, as we are finally now seeing a drop in initial mortgage delinquencies. Given today's rates, most borrowers with expiring ARMs are actually adjusting to lower rates. And let's remember that: Rates are historically low, and even a bump up of 50 or even 75 basis points still puts us at very low rates. That's why, again, we have to look beyond the rate to what the rate effects.