FHA Interest Rates Rally on March Fed Minutes

Filed under FOMC Minutes by on April 7, 2010 at 7:47 am {no comments}

had a nice day on the release of the Fed’s minutes from the March meeting.

This is a widely anticipated release that follows every meeting.  The press release is typically around 500-600 words and the minutes are often 5,000-6,000.  They’re ten times as long and often ten times as influential.

rallied, but could have gone the other way just as easily.

Wall Street was looking for clues and here’s what they found:  the Fed is less concerned about than they’ve stated in other recent releases.

That’s big.  Inflation is the enemy of .  Low inflation leads to lower FHA loan rates.

The economy is recovering.  This is the new normal.  It’s not going to be hyper-growth fueled by hyper-leverage.   Of note for , when falls, both rates and home prices will rise.  If you’re looking for that once-in-a-lifetime opportunity, the window to act is closing.  Rapidly.

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FHA Interest Rate Predictions: Watch Inflation

Filed under FHA Interest Rate by on March 19, 2010 at 7:47 am {no comments}

Homes are significantly more affordable today because of these low .  We’ve been hovering around 5% for quite some time.

When is the ?  If housing prices were to jump a whopping 5% in just a few months, it wouldn’t be as expensive as getting a 6% rate instead of a 5% rate.

Example:  If a home jumped from $100,000 to $105,000, the payment would go up somewhere around $25-30.  If the home priced stayed steady at $100,000, but rates jumped from 5% to 6%, the increase in payment would be more than double at just over $60 extra dollars per month.

The , not prices, have been driving this affordability.

So, when’s it going to end?

Watch .   are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring , these FHA interest rates have never been lower.

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