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Christmas Comes Early and Why Interest Rates will Continue to Improve

By
Mortgage and Lending with Signet Mortgage

We’ll have to call it Green Tuesday from now on – or Fat Tuesday comes to November.  The Tuesday before Thanksgiving was the announcement by the Federal Reserve of actions that are bringing back demand to the Mortgage-Backed Securities (MBS) Market. 

 

30 year fixed rates for conforming loans are now in the 5.5% range or better!   Also be aware that the conforming loan limit for some areas is up to $625,000!

 

We’ve been telling you for weeks that all of the inflation and economic news would lead to better rates than we have been seeing but an imbalance of supply (hi) and demand (lo) for MBS was artificially keeping the rates above their natural position.  Well that took a significant step in the right direction Tuesday with the announcement of a $600B purchase of direct obligations and MBS from Fannie, Freddie and the FHLBs.  You may see an $800B number.  The additional $200B is in a vehicle called TALF and is to support auto, student, credit-card and SBA loans.  These are both very liberating steps and very directly impact interest rates in residential and commercial markets. 

 

In the MBS price chart below, remember that up and green are good. Each bar or “candle” represents one day and the higher it is, the lower the interest rate.  Fat Tuesday is the tall green bar 4th from the right.  Note that the very big green bar about 15 trading days further back was Election Day.  In the 6 month period showing, the only thing close to where we are now is the period following the Sept 8th takeover of Freddie and Fannie (the white gap about midway through the chart.)  In fact MBS haven’t been in this range since Feb, 2005.  

 

 

This is GREAT news and there are reasons for it to stay in this exceptional range.  Recessions are always paralleled with low long-term interest rates because inflation subsides in a cold economy.  News this past week included the all-important PCE report on spending inflation.  It showed a month over month number of 0.0% and a respectable annual number of 2.1% that we can anticipate continuing to shrink as we put together consecutive extremely low inflation numbers.  That and the significant and growing unemployment numbers (now at 4M on continuing claims) are keeping interest rates low.  …and going lower too.  The FOMC meets again on December 16th and the futures markets have already baked in an 80% chance the Fed Funds rate will drop by that day a half a percent to 0.50%.  In fact, there is a 28% chance it will drop all the way to 0.25%.  Looking out a year, the futures markets have priced in a 100% chance of no Fed funds rate hikes.

 

What does that mean to you, your friends and clients?  Rates are now better than in years.  Funds are more available and the timing is right.  Signet Mortgage is ready to help you put deals together.

 

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Comments (3)

Paul S. Henderson, REALTOR®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

Dave, I've got my fingers crossed. I started in this business with interest rates at 10% and I don't see these rates as bad at all...

Dec 01, 2008 04:24 PM
Mobile Austin Notary
Apostille/Authentication/Embassy Legalization, Notary Public, Loan Signing Agent & Process Server Services - Austin, TX
www.mobileaustinnotary.com

Good Information. Smily

Dec 01, 2008 04:25 PM
Dinah Lee Griffey
Windermere Peninsula Properties - Allyn, WA
Managing Broker Windermere Peninsula Properties

That is great news. I hope our Buyers get out and make the most of it. Thank you for sharing-Dinah Lee

Dec 01, 2008 04:36 PM