Will McDermott is editor of Scotsman Guide Residential Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
CEO, MBS Highway
By Will McDermott
Barry Habib is CEO of MBS Highway,
a company and platform created to
assist mortgage professionals and
real estate agents in articulating the
opportunity in the housing market
for their clients, along with helping
them to gain a better understanding
of the interest rate environment. He
is an American entrepreneur and
frequent media resource who is relied
on for his mortgage and housing
expertise. Habib was recently named
the top real estate forecaster by
Zillow and Pulsenomics and has been
presented with the Crystal Ball award
for the most accurate real estate forecasts out of the top 150 economists
in the U.S.
Interest rates may rise higher than expected
Forecasting where mortgage interest rates are heading is never an easy task. Numerous factors affect rates,
including increases and decrease of the Federal Reserve’s federal funds rate, Treasury bond yields, inflation
pressures, foreign investments and investor perceptions about the stability of the U.S. and world economy, to
name a few. Over the past few years, most housing industry economists have forecasted rates to rise and yet
they have stubbornly stayed at historic lows.
One forecaster, Barry Habib, the CEO of MBS Highway, correctly predicted the staying power of these low rates
over the past few years. Now, Habib is predicting rates will rise significantly higher than what most other economists are forecasting. We talked with Habib about his year-end prediction and what mortgage originators need
to do to survive in a rising interest rate environment.
What is going to happen to mortgage interest rates this year?
I think that interest rates are more than likely going to rise for some pretty simple reasons. It’s just supply and
demand. When we take a look at the supply coming to the marketplace by way of Treasurys, it’s going to be
significantly higher — like 84 percent higher. To break that down, in 2017, our government spent $515 billion
more than it took in, so in order to make up the difference, it had to sell that via Treasurys — bills, notes and bonds.
This year, the amount we’re going to need to sell in Treasurys is $955 billion.
But now we add to that what I call “Quantitative Tightening.” … The Fed put on its balance sheet an enormous
sum of money. It was $4.5 trillion they put on their balance sheet. [Some] $2.7 trillion was in Treasurys and
$1.8 trillion was in mortgage-backed securities. … Starting [this past] October, they said we’ll do the same thing
we’re doing, but we’re going to reduce it by $4 billion in mortgage bonds and $6 billion in Treasurys every
month. And then they ramped it up [this past] January to $8 billion less in mortgage bonds [and] $12 billion less
in Treasurys. [In] April, the Fed continued that ramp-up process … to $12 billion less in mortgage bonds and
$18 billion less in Treasurys. They’re going to do the same thing in July and then the last ramp-up will be in October.
What does all that mean for mortgage rates?
When you do the math in 2018, [the Fed is] buying $252 billion less in Treasurys and $168 billion less in mortgage
bonds. At the same time, we know [the government is] putting out another $440 billion [in paper], so as you can
see, this is a lot for the markets to absorb. … When you piece it all together, that should cause mortgage rates
to go higher.
How much higher?
For the last 45 years, the average rate on a 30-year fixed rate was 8. 25 percent, so rates going from today’s …
4. 5 [percent] to 5. 25 [percent] — it is not the end of the world by any stretch of the imagination. It’s still good
rates, but refinances will be fewer and some of the pricing that’s currently in real estate will be slowed. …
It’s going to be a different environment with that much of an increase in rate over a short period of time.
You believe 30-year mortgage rates could hit 5. 25 percent by the end of 2018?
I do. I feel good about that prediction.
What should mortgage originators be doing to adjust to higher interest rates?
We as mortgage professionals have to articulate the opportunity in real estate. We have to become a very valued
resource to help the real estate agents see that. … You need to, now more than ever, be an adviser, and you need
to articulate the financial opportunity that exists in real estate, because in this tight-inventory market, it is highly
common that if the listing is priced at an attractive level, you’re going to see multiple offers.
The lowest rate does not always win, otherwise there would be one company and one loan officer that did all the
business in the United States. Somebody with higher rates is winning transactions, and they’re winning transactions
by being an adviser. … [Sales] people want to be magnetic. You know what the best way to be magnetic is?
Have anyone who leaves your presence feel smarter. That makes you extremely magnetic. n