SAN ANSELMO, Calif.-One analyst predicts a slow and gradual rise in interest rates in the remainder of the year, accompanied by a marked increase in mortgage lending.
Dan Geller, EVP at Market Rates Insight, sees the U.S. nearing the turning point in deposit rates based on the company's monthly analysis, as well as a likely increase in the Fed funds rate by mid-2014. According to Geller, one of the reasons the Fed has indicated it will slow its bond buying is to allow rates to tick up and move consumers off the fence those waiting for mortgage rates to bottom out.
"There is large segment of the populating waiting to get a mortgage at the lowest possible rate," Geller told Credit Union Journal. "[Federal Reserve Chair Ben] Bernanke is saying to these people that if you are waiting to get the lowest rate, that time is now. So we expect to see an increase in lending activity, particularly mortgages, in the second half of the year."
Deposit rates will move up slightly, in part, as FIs seek to bring in additional liquidity to fund the boost in lending, offered Geller. "Credit unions should make sure their funding levels are sufficient to the lending levels they foresee and forecast in their respective areas. This is the time to look at the portfolio of loans in the pipeline and monitor any increase in applications and to plan liquidity accordingly. Keep in mind there will still be some areas of the country in which real estate will continue to be depressed, and credit unions in those areas will not see an increase in lending."
Not Too Hot
The need for liquidity will spur some deposit rate competition among banks and credit unions, predicted Geller.
As rates rise, Geller is not concerned hot money will exit FIs in a rush, headed for money market mutual funds or the stock market. Geller thinks the slowdown in Fed bond buying will take some steam out of the equity markets. "I am not forecasting a lot of people taking money out of insured deposits for the equity markets. If anything, I see a cooling down in the equity markets-evidenced by how the stock market reacted to Bernanke's latest speech."
