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Economists Predict Mortgage Interest Rates to Drop More

November 16, 1986

Some of the nation's leading economists said last week that interest rates will continue dropping through the end of this year and move even lower in 1987.

Glen Crellin, an economist for the National Assn. of Realtors, said rates on fixed-rate, 30-year mortgages could drop to as low as 9.25% by the end of this year from about 10% today.

A NAR official told realtors meeting at the trade group's annual convention last week that rates will trend downward throughout next year, hitting 8.9% by the first quarter of 1988.

Adjustable-rate mortgages, NAR economists said, should also decline. ARMs without low, introductory "teaser rates" will likely drop to 7.3% by the first quarter of 1987, and fall to 6.6% by the start of 1988.

Economists at other trade groups generally agree with NAR's assessment. They note that the economy is still sluggish, and that the Federal Reserve Board will probably have to cut the discount rate to stimulate more activity.

The most bullish of the interest-rate bulls remains John Rutledge, chairman of the Claremont Economics Institute. He said in a recent article in his monthly newsletter, The Main Street Journal, that "30-year mortgages won't be attractive until rates get down to the 7% to 8% range.

"If you borrow, don't borrow at fixed rates," Rutledge advises. "As long as inflation stays low, interest rates will have to decline further. It's better to have an adjustable-rate loan as interest rates decline."

The economist believes rates on fixed-rate, 30-year mortgages will drop to about 8% by the end of next year, and fall to the 7% range by the end of 1988.

Although Rutledge's predictions may seem over-optimistic, consider this: Four years ago, when mortgage rates were around 15%, he accurately predicted that rates would hit single digits--while most other economists said rates would stay high.

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