Yesterday, about the time the Fed was announcing the latest shot of monetary policy cortisone for the financial system, we were laying prone getting an actual cortisone shot. To the spine. With a needle about as long as the sentence you are reading. Really a fun experience. We can’t recommend herniated discs, and the attendant treatment regimen enough.
The timing of the procedure precluded our normally timely musings on the Fed, but also gave us time to reflect upon the extraordinary circumstances we are witnessing. In fact, if you read our Monday Market Commentary, the Fed statement played out almost exactly as we predicted:
Expect the Fed to trim the benchmark Federal Funds rate by .5-.75%.
More importantly, the Fed may allude to increased “quantitative easing” (remember that term) measures. With Fed Funds rates already super low, there’s not much more they can do with that particular tool to goose the economy; So we may see the Fed increasingly target rates and credit markets not under their direct control (mortgage rates, business credit, other consumer loans, etc.) in an attempt to shake loose some economically lubricating borrowing and spending.
And the Fed (emphasis ours):
The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
So there you have it. Loosely translated the above passage says the Fed will pull out any and all stops to rescuscitate the economy and force money from the banks down to the street level in the form of lower rates and more lenient credit standards on all types of borrowing, but especially mortgages.
The immediate result is Fixed Mortgage rates are sitting well below 5% for many, and look like they are headed for 4.5% or lower. The secondary market is pricing in the possibility of 4% 30 year fixed rate mortgage money. Just amazing, amazing numbers, when you take a moment to think about it.
Wherever this ends, one can probably rest assured that we will never again see mortgage interest rates at these levels for sustained period of time in our adult lifetime.
That is a good thing, of course, but one thing is certain in the mortgage market. Whatever goes down, eventually comes back up. Sometimes very quickly. So while it might be tempting to see just how low rates will get, tread carefully. Looking 4.5-5% fixed rates in the face and blinking can get you burned, but quick.
Also remember that in order to refinance, you need, at a minimum:
1. Equity in the property (unless of course you have an FHA Mortgage, which allows no-appraisal refinances. These may be coming in the conventional market soon, by the way) which is far from a no-brainer even if you put 10-20% down in the last three years. Also, home values are probably not at a bottom just yet, so there may be more pain to come.
2. A job. Many people who have a job now may not when rates hit bottom (if they haven’t already.)
If you have not done so already, it is time to reach out to your mortgage guy or gal. And if you don’t have a go-to someone you can call, feel free to drop us a line.
In the meantime, if you are watching mortgage rates, subscribe to our Ratewatch Twitter feed for several-times-daily updates to the mortgage market and interest rates via the web, RSS, IM, or your phone.