A Simple Explanation Of The Federal Reserve Statement (January 27, 2010 Edition)

Filed under FOMC by on January 27, 2010 at 1:31 pm {no comments}

Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the within its target range of 0.000-0.250 percent.

In its press release, the noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.

There was no mention of the housing market’s strength.  The last 3 statements from the Fed included that specific verbiage.

It’s the fifth straight statement in which the Fed spoke about the economy with optimism.  This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.

The economy isn’t without threats, however, and the Fed identified several in its press release, including:

  1. Credit remains tight for consumers
  2. Businesses are reluctant to hire new workers
  3. Housing wealth is down

The message’s overall tone, however, remained positive and inflation appears is still within tolerance.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010.  This is noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates in Oak Park are rising this afternoon.

The FOMC’s next scheduled meeting is March 16, 2010.

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FHA Interest Rate Predictions: January 25, 2010 Edition

Filed under FHA Interest Rate by on January 25, 2010 at 7:46 am {no comments}

The FOMC meets this week -- mortgage rates will be volatileConforming and improved last week on the combination of soft economic data and new talk from the White House about tightening up banking regulations.

The S&P dropped 4% in its worst week since October.  As money left stocks, it went into bonds, and pushed lower.

Since a very ugly December, mortgage bonds have made up half of the losses and it is helping with home affordability and has opened the window on another surge of refinancing activity.

This week is loaded with news and could push rates back up in a blink.

Today, the December report came in and it was very weak.  This is because of a combination of factors including:

  1. The initial tax credit expiration date of November 30, 2009
  2. Sharply rising mortgage rates throughout the month of December
  3. A general slowdown from the holidays and from the weather

Home sales are down 16%, but there are a lot of reasons.

Later this week, we’ll see the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same.  New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely.  The Fed is not expected to change the from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.

As always, what the Fed says is almost more important than what they do. If the Fed says the economy is growing and everything is going as expected, mortgage rates should rise.  On the flip side, if the Fed says there are still significant risks, rates could drop a little lower.

Rates will be volatile all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.

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FHA Loan Rates Moving Higher

Filed under FHA Interest Rate by on December 24, 2009 at 4:09 am {no comments}

have been under pretty heavy selling pressure for the past month.  What this has done is drive the benchmark 30 year fixed rate up to about 5% today.

What we’re looking at is the graph of the Fannie Mae 4.5% bond, but the Ginnie Mae’s that drive the FHA loan rate have followed the same path.  This is the price of the bond, the rate moves in the opposite direction.  So, in this graph, red is bad for mortgage rates and green is good.

It’s very clear that this month has been dominated by bad movement in terms of mortgage rates.

The 2010 point towards a continued trend towards higher rates.  I’ve seen argument for rates ranging from 5.5% to 6.5%.  The case being made for the 6.5% folks is technically sound reasoning, but I think it presses the edge of the high side.  Similarly, that 5.5% guess is probably low.  These estimates foreast the rising anywhere from .5% to 1.5%.  It is probably safe to split the difference and become prepared for a 6% rate environment and about a 1% increase from today’s levels.

What does that mean for a home buyer?  Get moving and get moving quickly.  The home supply is rapidly selling off.  That, more than any other single factor, influences home prices.

They’re not getting cheaper.  If home prices are going to be the same or higher and mortgage rates are going to be higher, possibly much higher, the housing payment for the exact same home could be 10% higher by March.

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