The headlines in the business sections of most major newspapers screamed: FED DRIVES DOWN MORTGAGE RATES!
According to the Associated press, mortgage rates tumbled to historic lows Thursday after the Federal Reserve’s decision to print $1.2 trillion and pump into the economy. Even though this normally increases the chances of inflation, the Fed made clear that – for now – it isn’t worried about inflation. It’s more concerned with falling prices, or deflation. This move already has the talking heads predicting lower mortgages rates.
In related news, the Fed announced Wednesday it would by $750 billion in mortgage backed securities and $300 billion in Treasury debt. It will also double its purchases of debt issued by Fannie Mae and Freddie Mac to $200 billion. Now that is good news for mortgage rates but not necessarily what you might think.
The recent deluge of speculation on lower interest rates, has many First Time Homebuyers rethinking their decision in hopes of lower mortgage rates.
My ol’ pappy used to say: “You don’t get nothin’ from sittin’ on the fence ‘cept splinters.”(sounding more like Bret Maverick’s father than mine).
The most important thing you can take from the Fed’s decision, is that the Fed will provide a source of mortgages for the forseeable future or until investors are willing to stick their toes back in the market. Whether rates will go any lower, remains to be seen.
What are other experts saying:
According to the WSJ: Mortgage firms Thursday were quoting rates averaging 4.75% on 30-year fixed-rate mortgages, but in an article today one reporter at the Wall Street Journal thinks this is pretty much the bottom. The Fed has just about exhausted the things it can do to drive them lower – It has lowered lending rates to near zero, bought up Treasuries, and purchased debt by the fistful in a move many economists warn will trigger inflation at the first sign of an economic recovery.
Economists predict Fed Chairman Ben Bernanke and his colleagues will hold the lending rate between zero and 0.25 percent for the rest of this year and for most, if not all, of next year to combat the recession we’ve been in since December 2007. Of course with a lending rate this low, the Fed is just about powerless in the face of recession, but that’s not stopping them from meeting to talk about it. The options still remaining are: 1) buying long-term Treasury securities, and 2) boost its purchases of debt issued or guaranteed by mortgage giants Fannie Mae and Freddie Mac. Both options would help depress mortgage rates. Hopefully they won’t adopt the latest fad on Wall Street as option number 3 — voting themselves bonuses.
Barry Habib reported on Fox News that the future of interest rates hinges on which mortgages the Fed agrees to purchase. If they focus their efforts on, say 5 or 5.5% rates, then the market will probably settle in that area. “Bottom line – although the media is spinning it differently, this is still not the time for you to stay on the fence, hoping and waiting for lower rates (My pappy also used to say: Hope is not a strategy!) Home loan rates remain within inches of historic lows, but may not move significantly lower based on this purchasing plan-waiting is risky.
The experts have spoken, now it’s my turn.
One thing has held true regarding interest rates since the first money was lent in Ancient Egypt, Interest rates can only do three things:
They can go up!
They can go down!
They can stay the same!
In only one of three scenarios can you get a better interest rate than you can today.
How much of a gambler are you and how long do you want to keep pulling out splinters?
IT’S TOO IMPORTANT…DO IT RIGHT!
Greg Cook
First Time Homebuyers Network
phone: 951-265-4532
fax: 951-699-7813
email: greg@homebuyerhelpnetwork.com
website: www.homebuyerhelpnetwork.com
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