I wish I knew!!  The Fed cut short term rates another 1/2% today and the stock market rallied, then pulled back - the Dow down about 34 points.  Mortgage Backed Securities (MBS) traded down slightly in the hours after the Fed cut - down about .125 discount points.  What are investors trying to tell us?   The large Fed cuts are an over-reaction and will lead to more inflation down the road, which is bad for mortgage rates or the Fed is behind the curve letting a slowing economy moving toward a recession, which is good for mortgage rates?  Tough choice!

Here's the Fed Statement:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

My take is that traders & investors are waiting to see what the rest of the week's economic reports bring.  Employment Cost Index (Q4) and Personal Income & Outlays tomorrow, then Employment and Consumer Sentiment on Friday.  If these reports show more weakness - remember Q4 GDP was only half of what was expected - then we should see some improvement in mortgage rates over the next couple of weeks.

A big caveat though.  30 year fixed rates are only about 1/4% to 1/2% above their 5 year lows.  A 30 year fixed rate mortgage at 5.75% is still very attractive and rates below 6% might not last too much longer.  We're seeing a huge increase in refinance activity right now as homeowners are taking advantage of this dip in rates.  By the mid-to-late Spring, the opportunity might have passed.

My Realtors are telling me that activity is picking up at the beach, more phone calls, inquiries, showings, and yes, even OFFERS.  I'm seeing it as well with a pick-up in pre-approvals and calls about something other than refinancing.  There are some real bargins in the market at the beach and money is available and cheap.  Call your Realtor and see what's happening.