Archive for the ‘Mortgage Rates’ Category

Rates holding at historic lows

June 8, 2010

Interest rates are high, aren’t they? The experts predicted higher rates by mid year, and I even mentioned that would happen here, here, here, here, here, and here (if not more). If you read those posts, you will see there were several reasons why I (and essentially everyone else) thought this would happen. These reasons primarily revolved around the Federal Reserve ending their buying mortgage backed security (MBS) bonds.

* – definitely read the first linked post to get some more background information on that program from the Federal Reserve

SO… why are interest rates at their lowest point of 2010? Why did rates not dramatically rise when the Federal Reserve ended their program of buying  bonds?

Thanks to the debacle in Europe (along with our own economy that isn’t back on its feet), investors in the US and around the world are back to buying our debt (bonds) and not those of Europe. It was the heavy investing in Europe and the Euro that caused the precipitous drop in the value of the Dollar, which motivated the Federal Reserve to begin buying MBS bonds in late 2008 and increase their value.

Why is this important? – As the value of MBS bonds rise, interest rates fall. This cause and effect pattern, heavily influenced by the Federal Reserve over the past 18 months, led us to these historically low interest rates. When the program ended this past March, everyone assumed rates would rise. Well, they obviously didn’t and there were plenty of other investors more than willing to step in and buy bonds to keep rates low!

Now for the question we would ALL love to have answered, “What’s next for rates?”

In the past when interest rates got to these low levels, they almost immediately went back up. This seemed to be the self-imposed floor. Today? Not only have rates held, but they have slightly improved. They might actually get lower this time because:

  • The US economy is definitely not back on its feet and private sector hiring is down
  • The problems in Europe are just getting started as Hungary’s credit rating was down graded and Portugal, Spain, & Italy all share similar problems
  • Analysts are mixed whether or not the bailout for Greece will actually work

Regardless of what interest rates do (and it is anyone’s guess at this point), now is the time to speak with someone to get prequalified to buy a home OR to review your current mortgage to refinance. By doing so, you would be in a prime position to take advantage of interest rates at their current levels OR ready to move at a moments notice if rates continued to fall.

If that is you, I would enjoy the chance to speak with you and get everything in order for your new mortgage.

Performing without a net

April 1, 2010

The safety net is gone. The Feds are finished purchasing mortgage backed security bonds, and their direct influence on mortgage rates is over. Is a mortgage rate Armageddon upon us?

Don't look!! It's a long way down.

Well, no, it isn’t. That said, there could be a market “adjustment”, and here’s why…

In November 2008, the Federal Reserve announced a plan to purchase mortgage backed security bonds to lower interest rates into the 4’s. At the time of the announcement, rates dropped roughly a half a point over night. As the Feds began buying these bonds (increasing their value), mortgage rates fell into the 4’s – exactly as planned!

The Feds offered a “safety net” for bond prices. Investors knew that no matter what occurs in the financial sector, a certain amount of bonds would be purchased every week. This kept bond prices steady during this turbulent market.

Now the market’s “safety net” has been removed, what should we expect moving forward?

  • Considering rates dropped dramatically on the announcement of the plan, an opposite adjustment would logically be expected now that the plan is over.
  • Negative overreactions to financial events/data are back into play now that the Feds will no longer spend billions of Dollars each week buying bonds. Who will make up that gap during poor performing days for bonds?
  • What happens if the Feds now look to sell the bonds they purchased (over $1 trillion worth)? Putting those bonds for sale into a market along with the new bonds up for sale will dilute the market, weaken bond prices, and push rates higher.

In short, now that the Feds are no longer buying mortgage backed security bonds, the only direction rates have to go is up, not down. All the experts agree on that, they just don’t agree on how much rates will increase.

What should you do? If you are still holding out to buy a home OR refinance a home while rates are in the 4’s, the time is now. Get started and lock in a rate while these historic lows are still here!

is the (low mortgage rate) party over?

February 9, 2010

The party is just getting started in New Orleans (Super Bowl win + Mardi Gras = month long celebration), but it may soon be coming to an end for historically low rates.

Enjoy it while you can!

Mortgage rates hit historic lows in 2009 thanks to the extraordinary efforts of the Federal Reserve.  Back in November 2008, the Feds announced a program to buy mortgage backed security (MBS) bonds.  The reasons were two fold:

  • to help push mortgage rates lower to stimulate the real estate market
  • to create a market (or in other words, increase the value) of MBS bonds for others to buy

When the plan was announced by the Feds in November 2008, interest rates dropped roughly a half point in one day!  As the Feds began buying bonds, rates dropped down to their historic lows. The initial plan was to buy bonds through the first six months of 2009. It was extended through 2009, and extended again through end of the first quarter 2010.

At their recent meeting, the Feds reiterated their intentions to “seamlessly exit” the MBS bond market with no hint at another extension to the MBS bond buying program.  The question now is “what happens to mortgage rates?”  Take a look at the chart below.

Since mortgage rates dropped significantly on the announcement of the plan, and then continued to improve to historic lows as the Feds purchased MBS bonds, one would logically expect the opposite reaction once the bond buying program comes to an end.  In this case, and at least to some degree, interest rates should rise.

How should you proceed? Anyone who hasn’t refinanced OR is waiting until the deadline to take advantage of one of the home buyer tax credits, go ahead and get prequalified today.  Move forward with the loan now while rates are still ridiculously low.

There is not guarantee rates will dramatically increase, but also no guarantee they will stay the same.  Take advantage of the market and low rates while they are still available.

Through the roof

October 26, 2009

Where is the country’s debt level headed? I’ll give you a hint; see the title of the post. 

That’s right, with the $123 billion auction in Treasury bonds due out this week, the debt level of the U.S. is going to be at the brink of the self-imposed ceiling of $12.1 trillion.  This raises some interesting questions with the first one being pretty obvious.

1. What does this mean? – It means that the government will be out of money to operate.  The government will either shut down OR vote to raise the debt ceiling.  The latter is the much more likely scenario.

2. “The government shuts down.” That sounds bad so how will that affect all of us? – Day to day life will go on as it did before the shut down just like it did the last time there was a shutdown in 1995.  It sounds worse than how it will actually play out.

In theory, the debt ceiling should be a resistant level for government spending. Meaning, if it gets to that point, perhaps it is time to reevaluate some policies.  Sadly, that doesn’t happen when you have the alternative of simply raising the ceiling.

3. How would this affect interest rates and the market?  Now this is perhaps the most intriguing question of all, and the potential affect on mortgage rates would be a negative one.

If the government shuts down and/or the debt ceiling isn’t raised, then United States of America finds itself in a situation where we are maxed out on credit – we have no credit – resulting in a loss of value for U.S. bonds.  This scenario would negatively impact other country’s bond investments, individual’s bond investments, and cause interest rates to rise (as bond prices fall, interest rates rise).

That scenario will likely be avoided by a simple vote to increase the debt ceiling.  That said, the debt ceiling isn’t the only development affecting the trading and value of bonds:

  • Bond prices are not only on the wrong side of the 200 day moving average, but are also below the 10, 25, and 50 day moving averages. That means there is no support to hold bond values should the market be given a reason to turn.
  • Fascinatingly enough, a “reason” for turning may occur this week as the Feds plan to auction $123 billion in bonds this week.  If the auction buying is weak, expect bond values to drop pushing interest rates higher.

In short, the technicalities of bond trading point toward bond prices falling and interest rates rising. If there ever was a time to lock in a rate for a purchase, or talk to someone about refinancing an existing loan, now is the time. Don’t miss out on these historically low rates hoping they will improve by another 0.125%.  Get started today

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The end is near

October 19, 2009
5 Minutes to Midnight

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me.  The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009– As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left. 

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates– Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds.  This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!!  Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds.  They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher.  One can only expect this trend to continue as the Feds move away from buying bonds. 

All hope is not lost. At this moment, it is not too late.  If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low.  Also, there is enough time to still buy a home and qualify for the tax credit if you start today.  Let’s get started by calling or emailing me!

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The passing of time

September 18, 2009

Time.  Where does it go? We never seem to have enough of it… We typically wonder if the time is “right”… and for some of us, time is beginning to run out.

Tax credit for first time home buyers – In order to qualify for the $8,000 tax credit, the home must be purchased before December 1, 2009 – which means November 30th. 

You may be thinking “there is still plenty of time.” While there are still 10 weeks remaining, if you haven’t started the process, it’s enough time, but not a lot of time to spare.

Think about it… You’ll need to find a realtor. Then find the time to start looking at homes for sale. After looking at several homes, you’ll make an offer AND wait for the offer to be accepted.  Then you will need to apply and get approved for a loan.  Finally, after all of that, you are ready to buy the home.

Typically the entire process can take somewhere between 6-8 weeks.  Whew, two weeks to spare! However, remember there is a major holiday that will limit the number of closing times available at the end of November. 

Oh, don’t forget about fence sitters who will make the move to buy a home.  Now all of the sudden realtors are busier than normal, closing attorneys are booked, and lender underwriting times may be longer than normal.

The moral of the story – plan on closing at the beginning or middle of November to be sure not to miss out on the tax credit.

Refinancing a home – Rates are at historical lows.  As of this post, a 30 year fixed rate is under 5% and a 15 year fixed rate is in the low 4’s.  That being said, rates won’t stay there forever.  Don’t believe me? Remember late May of this year when rates went from the mid 4’s to almost 6% in about two weeks?

I don’t know when rates will go up, but they will at some point.  If you are thinking about refinancing your home, let’s talk now and see if it makes sense so you don’t miss out.

sand clock

Time… we never seem to have enough of it and wonder if it is the “right” time.  If you are looking to buy a home and get the tax credit OR refinance your existing home, now is the time! I’d enjoy the opportunity to speak with you about your options.

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Finally, bonds have come back…

September 2, 2009

… and passed the 200 day moving average pushing rates below 5%!

August saw bonds slowly and continually climb back toward the 200 day moving average.  This caused rates to drop down to 5%, but rates didn’t improve much beyond that point.  Why? – because we were still on the wrong side of the 200 day.

Finally, after weeks of trying, bond prices pushed through the 200 day moving average and rest above this crucial level.  The result? – mortgage rates are back in the 4’s!

Where do we go from here? We could see some sub 5% rates for the near future due to a couple of factors.  First, the continued release of poor to just plain bad economic reports shows the economy is not completely back on its feet.  Second, the poor economic reports have caused money to flow out of stocks and back into bonds.

Investors are wary and wonder if the stock recovery we’ve seen over the last several months is a real recovery OR simply inflated by all the government money poured into buying bank stocks thus artificially increasing their values.  No one knows for sure, which is why we are seeing a more cautious approach to investing.

One thing we do know for sure is rates in the 4’s won’t hang around forever. If you missed it the first time, let’s get started today so you don’t miss out on this chance to refinance with these historically low interest rates.

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The world may never know – a stimulus plan review

August 12, 2009

After a year and a half and three stimulus plan attempts later, where are in this economic downturn? One could argue that all of these plans have failed.  Jobs continued to be lost, the economy still hasn’t recovered.  The government wasted the $1.7 trillion dollars used to fix the economy.

The counter argument would be improving a country’s economy is like a turning a ship – it takes time.

Probably the best way to judge how things have gone thus far is to look at history and compare.  I’ve previously blogged (here and here) about the similar situation that Japan and Sweden faced in the 1990s.

  • Sweden acted swiftly with government bailouts to buy up “toxic assets” and helped the economy get back on course in a few years.
  • Japan initially refused to bailout the financial sector.  After ushering in The Lost Decade, the government issued their own bailout to buy up “toxic assets” to help the economy improve.

Where is the USA in this?  I would say definitely closer to Sweden than Japan.  The government began the bailouts pretty early to stimulate consumer spending, help prop up the major banks, and keep the financial infrastructure from completely collapsing.  With this help, there are signs that the economy is recovering.

  • job losses have slowed
  • housing sales are climbing
  • the GDP barely contracted in the 2nd quarter and some economists see the recession ending in the 3rd quater this year
  • consumer confidence is higher
  • stocks improved from their early March lows of 6500 (lowest levels since mid 1990s) to almost 9500 in August
  • the series of positive economic news pushed interest rates off of their historical lows into the low 5’s, which is actually a good sign for the health of an economy (not so good when buying a home)

An intriguing difference between our current situation versus that of Japan/Sweden is our bailout money was not used to buy toxic assets (at least not yet).  Instead, the money was used to buy stocks and prop up banks, which caused the stock recovery. Is this yet another bubble? Hopefully that is not the case!

Only time will tell if the bailouts were the right thing to do.  Without them, we could have seen the complete collapse of our financial system; possibly another Great Depression.  With them, the economic outlook certainly seems much brighter with stocks recovering, home sales climbing, and slightly higher interest rates… but we’ll never really know for sure if they (or how much they) were needed.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

d’oh

August 5, 2009

In the famous words of Homer Simpson… “d’oh!

Why the reaction?  Well, interest rates are moving in the wrong direction. 

  • Lots of optimism on Wall Street and the Dow is now over 9,000.
  • Pending home sales now up for 5 straight months.
  • Ford posts big gains in the last month (primarily due to the “cash for clunkers” program).
  • Job losses at their smallest amount in 9 months, which only fuels the optimism on Wall Street.

This series of good economic news is a great sign that we may be at the bottom of the down turn.  The bad news is while stocks are surging, bonds are suffering and have dropped below the 200 day moving average – d’oh!

Twice this morning, bonds have tried to move back above the 200 day average, and have been beaten back twice.  As we all know, this is not good for interest rates and only pushes them higher.

Speaking of rates, they had moved below 5% on Friday, but are now sitting around 5.25%.  While this is still a fantastic interest rate, the trend direction in rates has taken a turn for the worse. Until the bond market can move back above the 200 day moving average, rates will not improve dramatically from their current levels.

If you are out looking for a home and are wondering whether or not to lock in your rate, not to worry, I can take the guesswork out of the decision.  Contact me and I’ll give you details on how we can lock your rate AND float it down for FREE if rates were to improve. 

It’s a win-win situation and puts you in a better position than this guy.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Rates still near historic lows

July 23, 2009

Rates are in fact still near historic lows.  For those of you still waiting to refinance, what are you waiting for?!?

Perhaps a better question would be… which would make you more upset? 

  • We DID lock-in your interest rate, and mortgage rates went down.
  • We DIDN’T lock-in your interest rate, and mortgage rates went up.

The answer to that question should help you decide whether or not to go ahead and refinance.  There will be a few who miss out on these rates. Don’t be one of them!

Oh, also, be sure you have the help of a mortgage professional who keeps a close watch on the Mortgage Backed Security (mbs) market, undersatnd the trend lines of resistance and support in the mbs market, is aware of upcoming econmic reports, US Treasurey policy, Federal Reserve policy, and how all of this affects mortgage rates.

Don’t know of anyone like that? Don’t hesitate to contact me.  We can review your current situation and see if there is a rate and time that makes sense for you to refinance.

Get started now while rates are still at these historic lows!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.