Mortgage Rates, where are they headed and what is in store for us for the next few months
September 25, 2009
Report from our mortgage consultant, Mike Loglisci on the current mortgage market:
Existing Home Sales were reported at 5.10 million, less than expectations of 5.35 million and the first decline in five months. However, there was some good news in the report, as inventories of unsold homes fell to an 8.5 month level…the lowest inventory level seen since April 2007.
As expected, the Fed did not touch interest rates, but the statement was a market mover. The Fed said they are going to draw out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. This tells us a few things – there was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and yesterday’s statement is a nice way of the Fed saying “no.” They will not be buying more, but what they will do is attempt to provide a smoother transition to normal market conditions. It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher…most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise.
So what does this mean for rates in the short term, and why did the Bond market rally on this news? The rally was more than likely due to the headlines from the media which said that the program was “extended”. The markets reacted positively by thinking that the program would stay in place as is for three more months, which would have included more Fed buying. But the gradual reduction in purchases has to bring us to higher rates. The Fed has been buying about $25B per week, but the new plan to drag out these purchases over a longer period of time, means that they will be reducing both the frequency we and amounts of their purchases. This will cause higher levels of volatility, as the Fed will be purchasing less often and less consistently. So will see a gradual rise in rates over time…and we must be sure that this message gets out to our clients and referral partners. While we won’t be seeing a sudden jerk higher in rates when the Fed buying program comes to an end, it is clear that rates are now going to be on a gradual rise…and waiting to purchase or refinance will mean a higher interest rate.
In this morning’s economic news, Initial Jobless Claims fell by 21,000 in the latest week to 530,000, which was below expectations of 550,000. While this was a better than expected read, it’s still not exactly good news regarding the overall employment situation. Think about it…530,000 more people applying for unemployment benefits for the very first time really isn’t something to get too excited about. Bonds worsened initially on the headline, but have since moved back to positive territory.
If you are looking for a mortgage, please call Mike Loglisci at cell 609-338-9001. Let The Petridis Team help you with find your next home here in Atlantic County.
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Let's get together and talk about your >South Jersey experience. If you are a buyer, we can help you find the perfect home or condo for you in the South Jersey Shore Home area. If you are selling a home we can simplify the process for you. We can prepare a Comparative Market Analysis - CMA for your home and let you know what your home actual home value is in this market. Call Peter or Beverly Petridis at the office 609-264-7304, or on our cell phone 609-377-4023. We will set-up a time that is easy and convenient for you to meet.