If you are dealing with buyers on a budget you will have noticed that interest rates have crept up this week. Why ? The Federal Reserve is selling off some of their securities and buying mortgage backed securities. This is another effort to rid us of the toxic mess we are currently in thanks to Wall Street finance people. Now when you sell securities you have to increase the yield on the securities to get people to buy. Right! Over supply means higher interest rate. It is the old supply and demand thing. The Fed is walking the economic high wire trying to remove toxic assets so as to stabilize markets. But at the same time they have to keep their own sheet in balance so they need to sell securities. The net is a rate increase on mortgages. Here are a couple of things to remember.
1 Mortgage rates are at really low points. We are still under 6%
2 Talk to your buyers about responsible arms that may offer lower rates.
3 FHA loans are assumable. So if rates increase a buyer locking today will have an attractive package to sell later on
I do not think these rate increases are a sign of rampart inflation as some doom and gloomers say. Of course I have always blogged that the number 1 fuel for inflationary fires is government deficit spending. So of course I am concerned. But I think these rate increases, if they stay moderate, and under 6 % reflect the Fed's efforts to balance a market and are not a bad sign.