I was watching one of the news channels last night, who knows which one, and the talk was of 4% interest rates in the near future and the effect this would have on the housing market. If this prediction turns out to be true, then we may have a very nice spring for those of us in the Real Estate Biz. I have been talking to Realtors across the state and it appears that activity has been on a slight rise. Which is great news for us especially if we combine renewed activity with lower interest rates.
Have we touched the bottom??? I don ‘t know, but I am hoping when the sun starts shining and the flowers start to bloom, that our business starts to pick up!
News Reports
March 19, 2009 · 1 Comment
Categories: Uncategorized
1 response so far ↓
David Lukas, CMPS // March 27, 2009 at 7:17 am |
The Truth is that the media can be misleading about this interest rate thing. Here is why I think a 4% rate probably won’t be a reality.
Sorry, to sound negative……. The main reason rates are lower than they have ever been is because of the massive amount of Mortgage-Backed Bonds the fed is purchasing.
Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds…which won’t have much of an impact on present interest rates. Why? First, see the Fed’s purchases for yourself by hitting this link: http://www.newyorkfed.org/markets/mbs/index.html.
So why is the Fed buying these Bonds? Well if you think about it, it’s very smart of the Fed…and maybe even a little sneaky…because 5.5% Bonds actually represent outstanding mortgages with rates of 6 – 6.50%, which are precisely the loans being refinanced at today’s great interest rates.
Stay with me here…
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today’s low rates.
So my point is, now is the time to buy. In my opinion rates are probably as low as they are going to go. Especially if we see the Fed get it right when it comes to revising FASB 157, the mark-to-market accounting rule that in my opinion is 90% if the problem in the credit markets.
In addition all of the trillions of dollars in spending our federal government is doing will inevitably lead to hyper-inflation as soon as we have some positive GDP growth. Inflation, will drive yields up on mortgage bonds to compensate for the lost value of the US Dollar.
For more insight into this subject visit my blog at: http://www.Mortgage-Market-Blog.com
David Lukas, CMPS