Andi Grant's Blog - Everyday Real Estate with a Twist

Commentary
I'll explain in the easiest terms possible. The fed says that this is not a signal that they will be raising interest rates but a majorty of Wall Street investors disagree.  The feds raised the discount rate from .50% to .75% sooner than anyone anticipated and many speculate that it may be the start of rising interest rates.  Many believe a halt of the fed providing liquidity (money) to banks is near.  The fed states that they don't view inflation a concern and don't plan to hike interest rates. 

Remember, interest rates and mortgage interest rates are two separate things.  The government controls interest rates that banks charge each other for loans.  The selling and buying of mortgages on the bond market (we call them MBS-mortgage backed securities) determines mortgage rates.  Right now the feds are buying MBS(bottle feeding) but when they stop if nobody else wants to buy them, mortgage rates will rise. Do you want to buy mortgages and be the banks "sippy cup"?

Market insight
Mortgage rates have increased this week and there is a bearish attitude regarding rates.  In a nutshell,  mortgage rates are on the rise and don't expect them to come down.  The fed may allow the current stimulus programs to expire.  This includes the fed being the buyer of mortgages (remember when MBS are bought mortgages rates stay low)  so what does this mean for you?

Opinion
Extension of the home buyer tax credit may be in jeopardy.  Higher mortgage rates will make it harder for people to qualify, adding pressure to sellers to offer higher seller concessions to allow for "rate buy downs" to help buyers qualify.  If the the fed waits for strong signs that the housing market is indeed in recovery before stripping all liquidity from the markets and pressures banks to ease underwriting guidelines then a quick recovery is likely.

Providing access to loans to qualified borrowers without ridiculous conditions including a stated income loan program backed by Fannie Mae and Freddie Mac for self employed borrowers will help stabilize recovery efforts.  Amend HVCC and provide the $8,000 tax credit to employers who hire full time employees.  An employed buyer is more qualified that an unemployed buyer with $8,000.

 

Market Snapshot in financial geek terms

Markets were shaken yesterday with the January PPI jump of 1.4%.  The CPI today was expected to be .3% but came in at .2% with the core rate expected to be .2% was .1%.  The 10 year note was generally flat but mortgage prices -2/32 (.06) bps from yesterday.

 

After a strong sell off yesterday treasuries are slowly improving this morning.  The 10 year note may hit 3.92% but people holding out for lower rates will be disappointed as mortgage rates are expected to climb.  Only a substantial "market shock" would likely bring down mortgage rates.

 

Summary

Rates are rising,  fed may be pulling the plug and expect government stimulus programs to go away.  Prepare for a slowly recovering market and if you are "floating" lock your rate now.  Share this information with your prospective buyers and the likelihood of a shift in higher seller concessions to your sellers to assist buyers in qualifying.

 

 

 

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