Is the bond market or federal reserve correct on the future of interest rates?  Beyond 2019 there is huge disagreement.  The Federal reserve has relayed that future tightening will continue, but the markets aren’t buying it.  The bond market is predicting that a rate cut is just around the corner.  What does this mean for your real estate?  What about long term rates?  What should you do?  What is the market telling us from their actions?


Fed doesn’t set long term rates

Many people improperly believe that the federal reserve actually sets mortgage rates.  The fed primarily controls short rates.  Long term rates are pegged  to the ten year treasury.  The ten year treasury is determined by the bond market based on future predictions of economic growth, inflation, deficit spending, etc…   The fed can influence long term rates, but they do not control them.

What is the market telling us

The bond market is betting that rates are just as likely to fall as they are to rise in less than 18 months (source Bloomberg).  Regardless of what the federal reserve or anyone else is saying the market is factoring in an economic slowdown 18 months from now which could necessitate a cut in rates from the federal reserve.  In essence the market is saying a slowdown, correction, or some other economic event is coming down the tracks.

What about rates

Short term rates have been rising while long term rates have not moved up as much originally predicted.  Look for longer term rates to possibly rise a little further before falling in the next 18 months.  Remember that the 10 year treasury is a good indicator of long term mortgage rates.  As the 10 year treasury rises so do longer term mortgages rates and vice versa.

What should you do?

I would not lock into a long-term rate.  In the short term there will likely be some upward movement but long term the bond market is starting to relay that there will be an opportunity for a lower rate soon (18 months).  I did a 7/1 (fixed for 7 and then floats) as I think long term rates will come down based on the bond markets signals


Hang on           

Towards the end of an economic cycle volatility traditionally increases with big movements in the economy.  This is normal and has occurred in almost every cycle.  Now is the time to factor out the “noise” as the markets are sending clear signals on the future of rates and the impending end to the recent economic cycle.  Rates will likely do a little bit of a jump in the next 18 months while long term they will return to more desirable levels.  Be patient as there will be opportunities for lower rates very soon.

Sources/additional reading

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.


Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.  To get started on a loan all they need is their simple one page application (no upfront fees or other games).