Home Loan mortgage rates continue to decline

Home loan mortgage rates continue to fall for 2008.  Rates will continue to drop through the end of the year with consumers seeing a low somewhere in the coming months.  Why is this the forecast?  Several factors will come into play. 

The Dow Jones industrial average will continue to fall.   As predicted in my previous posting (Where is the Real Estate Market headed for 2008?, Dec. 30, 2007), I predicted a fall of 15-20% back when the Dow was going along strong.   So far, the Dow is off 11% from that call, 11, 893 as compared to 13,365 back at December 3oth.  This will continue to cause a flight to quality, as institutional investors pull their money out of stocks and place it in safer assets such as Treasury Bills Treasury Bonds, and Mortgage Backed Securities.  Indirectly, this will affect Mortgage Backed Securities which set mortgage rates and will help to drive interest rates lower.

Secondly, the Federal Reserve will continue to lower rates to help cause the recession (not officially called yet) to have a so called "soft landing".  Albeit their eyes will be on inflation.  However for the time being, heading off the risk of a deep recession is the first order of business for the Fed.  Once growth in the economy starts to turn upward, all bets are off as far as more lowering of the rates.  Unless of course inflation has subsided.  Which may be the case if the recession slows down the inflation rate.

If you are shopping for a mortgage loan, you want to work with a professional.  Here are four simple questions that the lender must be able to answer:

•  What are interest rates based on?  The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10 year Treasury Notes. 
  
• What is the next Economic Report or event that could cause interest rates to move?  A professional lender will be able to provide this answer.
• When the Fed changes rates, what does this mean?  The Fed changes both or either the Fed Funds Rate or the Discount Rate.  These are short term rates.  One is the rate at which lenders charge each other and the other is the rate at which the Fed loans to member banks.  The Fed does not directly control mortgage interest rates. 
  

• Do you have access to real time, live mortgage bond quotes?  If a lender does not have access to live mortgage bond quotes, upcoming economic news, how can he accurately recommend that you float or lock in your mortgage rate?  This is akin to a stock broker going off of yesterdays stock quotes and news.