As we have learned…The Fed, The Economy and Wall Street are very similar to the weather here in New England, just wait 5 minutes and it will be different. In this case it was a True Nor’ Eastah!!
Oops…was I not clear enough??
The Fed, which can be a love hate relationship, has a strategy that has been open-ended, it just pumped money into the economy, hoping things got better and for the most part, the economy is heading in the right direction. Now, Fed Chairman Bernanke says he has a more definitive game plan or at least as definitive as the Fed can be!! Mr. Bernanke will continue to buy Treasuries and bonds to stimulate the economy until unemployment falls to at least 6.5 percent — and as long as inflation stays low. Overall, this has been his plan and he is announcing that if we keep this pace, he is going to back off on pumping these funds into the markets or increase as needed. As we saw last month, Unemployment creeped up to 7.6% indicating the economy slowed.
Because of the comments and the timing of The Fed’s message this past week, Investors on Wall Street ignored the details of Ben’s plans, even know they really have not changed that much. The idea is to inject enough money into bonds and treasuries to keep long and short term rates low which will allow slow and steady growth in all sectors with Housing being the main focus.
“I think Wall Street overreacted,” said Bloomberg Government’s Nela Richardson. “It was almost as if Bernanke punched Wall Street in the collective gut, and that’s not what his intention was. He said — very clearly, I thought — that the Fed would begin to taper if — and only if — the fundamentals looked good. Not good enough, ‘good.'”
The markets are misreading the Federal Reserve’s messages as Investors reacted in a big way; the Dow Jones Industrial Average suffered its worst loss of the year. In the two days since Fed Chairman Ben Bernanke said the central bank expects to curb its big bond-buying program later this year, stocks tumbled, long-term interest rates rose and interest-rate futures contracts fell, meaning investors bet the Fed would raise short-term interest rates sooner than previously expected.
What investors did not hear was his second point: If the Economy does not meet the Fed’s expectations, Ben Bernanke is then willing to adjust the pace to keep interest rates low. Investors, the Markets, Wall Street and many others ignored this statement! Again, causing the Dow to have it’s largest drop in over a year and mortgage rates to surge to their highest point in over 2 years.
So, where are rates today? Just over a month ago, the 30 Year Fixed Conforming Mortgage rate was trading at 3.5% (plus or minus an 1/8th). Today, we are seeing this same rate trade at 4.375%-4.625%. A full point higher than just a month ago. On a $100,000, this is an increase of $105 per month and on a Loan amount of $417,000, this is an increase of $240 per month.
In my opinion as well as a few others, we should see some type of correction in the Markets. As these rates have moved so fast, it is possible this slows down the economy even more. It has brought refinancing of homes to a complete stand still. Purchases should still move forward, but it will cause buyers to rethink the amount they are borrower in some cases.
For more information about mortgage rates, programs and the economy, feel free to email me at Bill@billnickerson.com
The Mortgage Markets 