Rate Update March 19, 2009

Fixed Mortgage Rates are lower than yesterday.

 Yesterday was a big day for the Mortgage Industry…and economy in general as the Fed announced that they would purchase an additional $750 billion of Mortgage Backed Securities over the next year.  This attempt to secure the housing market and help keep rates low had a major effect on Mortgage Backed Bonds yesterday as prices soared to near all time highs.  It is important to look at how this will affect mortgage rates in the future.

 

1. Mortgage rates saw an initial drop as the news hit the wires and the party started on the trading floor.  It will be interesting to see if mortgage rates actually fall to levels that we might expect (or at least to levels that the media wants us to expect).  If you will remember back to mid January when Mortgage Bonds soared to All time highs, interest rates actually increased as lenders artificially increased interest rates because of the fact that they were already working at maximum capacity.  I would not be surprised if this happens to some extent again.  I am already a bit surprised that rates haven’t fallen as much as I would expect with that type of move in the bond market.
2. Consider that the Fed has know promised to purchase $1.2 Trillion dollars of Mortgage Backed Securities dating back to last November.  This will indeed keep demand high for Mortgage Bonds, but can’t ultimately decide where Mortgage Rates go.  I believe that this move will help keep rates low, but even $1.2 Trillion dollars is not much volume when considering the entire market.  We still have an open market on our hands where nearly every country on earth is investing into and the market will go in which ever direction it wants to.
3. INFLATION…Yeah, it seems like a pretty unusual topic to speak about right now as we are in one of the worst recessions that the Country has seen, but in the back of our minds we still need to think about how these purchase plans are working.  The Fed hits a button and starts printing money to pay for all of this.  Eventually inflation concerns will start to surface, which will hurt Mortgage Rates in time.  For this reason, I think it is no time to sit on the fence and wait for rates to get much lower.
4. Speaking of Inflation look at what happened to these prices yesterday.  Oil went up $5 a barrel, Gold was up $60, and the Dollar got crushed against many currencies.

 I think that we can float rates for a bit, but I also feel that at a moments notice the market could have a “knee-jerk” reaction and pull away a bit from yesterday’s gains.  If this happens, it will be a great time to lock now and take the savings off the table.