The Fed May Stop Rate Cuts for rest of 2008
The Fed reported today that they see slower growth and higher unemployment in 2008. Citing blows from the housing and credit debacles along with zooming energy prices, it also expects higher unemployment and inflation. The Fed is hoping that it's previous series of rates cuts, coupled with the governments $168 billion stimulus of tax rebates for people will help to energize economic growth. Given the hope of a second-half economic pickup but worried about inflation, Fed officials signaled last month that their one-quarter-point rate reduction, which dropped their key rate to 2 percent, might be their last rate cut for some time.
The PPI report was released this week and showed higher than expected inflation numbers on the wholesale level, even when stripping out food and fuel costs. I don't need to say that inflation is hitting everyone. Gas and food prices are skyrocketing. Inflation is key to mortgage rates as investors flock out of bonds (major determing factor for mortgage rates) and into higher yield investments.
Remember though, that Fed cuts affect short term interest rates and not mortgage rates. A strong economy with stabilized home values will have the biggest effect on mortgage rates. Banks and investors are still on the sidelines, hoarding cash, so the future is bright for home loans once we sustain a bottoming in the housing market. Don't expect to see any major turnaround on the housing front on a national level, but regionally, particularly in the Northeast, we can expect stabilization soon.
Looking at the glass half full again. Mortgage rates are still near historic lows, even with all this economic uncertainty and cash hoarding. Yes, lender guidelines have become stricter, but this will be for everyone's benefit, including those closed previously into bad low documentation home loans. Lenders simply don't want to take the risk on high loan-to-value with little or no documention any more.
Depending upon the source (I don't trust most national average mortgage rate sources), 30 year fixed rate mortgages for those with at least 20% equity in their home and excellent credit scores are between 6% and 6.25% today. My sources are below 6%, but even at a 6.25%, that is a great rate historically. The fear in the mortgage market now is that the bond market will crash, inflation will jump heavily, and the housing market will continue it's slump. This scenario would cause mortgage rates to increase significantly.
Looking on the rosy side again, the economy is set up for a rebound, but this will take us to 2009 in my opinion, before stabilzation and growth occurs in both the economy and housing markets. Till then, we will most likely experience the current roller coaster ride in the mortgage rates amusement park.
May the Rates be With You!
Refinance Tool Box
The PPI report was released this week and showed higher than expected inflation numbers on the wholesale level, even when stripping out food and fuel costs. I don't need to say that inflation is hitting everyone. Gas and food prices are skyrocketing. Inflation is key to mortgage rates as investors flock out of bonds (major determing factor for mortgage rates) and into higher yield investments.
Remember though, that Fed cuts affect short term interest rates and not mortgage rates. A strong economy with stabilized home values will have the biggest effect on mortgage rates. Banks and investors are still on the sidelines, hoarding cash, so the future is bright for home loans once we sustain a bottoming in the housing market. Don't expect to see any major turnaround on the housing front on a national level, but regionally, particularly in the Northeast, we can expect stabilization soon.
Looking at the glass half full again. Mortgage rates are still near historic lows, even with all this economic uncertainty and cash hoarding. Yes, lender guidelines have become stricter, but this will be for everyone's benefit, including those closed previously into bad low documentation home loans. Lenders simply don't want to take the risk on high loan-to-value with little or no documention any more.
Depending upon the source (I don't trust most national average mortgage rate sources), 30 year fixed rate mortgages for those with at least 20% equity in their home and excellent credit scores are between 6% and 6.25% today. My sources are below 6%, but even at a 6.25%, that is a great rate historically. The fear in the mortgage market now is that the bond market will crash, inflation will jump heavily, and the housing market will continue it's slump. This scenario would cause mortgage rates to increase significantly.
Looking on the rosy side again, the economy is set up for a rebound, but this will take us to 2009 in my opinion, before stabilzation and growth occurs in both the economy and housing markets. Till then, we will most likely experience the current roller coaster ride in the mortgage rates amusement park.
May the Rates be With You!
Refinance Tool Box
posted by Jim Bisnett at
3:52 PM
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