If you follow me on Twitter or Facebook then you got the update that I was showing homes in the $180K and less range today. In between showings, I got an update from @Viv_Chan letting me know that interest rates dropped 0.50%! Now that may not seem substantial, but for my buyer who has set his monthly payment congruent with a $180K home (approx. $995 per month), he can now keep the same monthly payment and shop for a home priced in the $190K range!
Any buyer experiencing the volatility of the market will tell you that an extra 10K will buy you a lot more of a home than one might expect. If more home is not in your future then you will get a lower payment instead. But why did the rates go down as indicated in the chart below?
The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today, within the target range of 0.000-0.250 percent. This doesn’t mean the Fed stood still though.
On plan to resurrect the economy using “all available tools”, today, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.
The stimulus will likely be Thursday morning’s headline story.
In its press release, the FOMC touched upon a few of the main economic issues, using these points as a legitimizing backdrop for its newest debt load:
- Job losses and wealth loss are dragging down consumer spending
- Some U.S. trading partners are falling into recession
- Businesses are cutting back on investment and inventory
Of interest is that the FOMC said today’s inflation levels may be too low to support economic growth at all. This condition is more commonly called deflation. The Fed’s latest actions, therefore, may be a deliberate attempt to induce inflation through unprecedented borrowing.
For home buyers and potential refinancers, this is terrific news — at least in the short-term. By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates lower. Already this afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equilibrium.
After the Fed’s last intervention, markets reached their balance point in about a day-and-a-half.
Still sitting on the fence? Waiting for lower rates rather than preventing higher ones is a flawed strategy and in this case, the dealer just went bust. Get moving and get your rate locked in by submitting the offer on the home that you’ve been eyeing. Call me for more information!
Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2009
http://online.wsj.com/public/resources/documents/info-fedparse0903.html
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