Monday Market Commentary: Fed Buying Pressures Rates Lower

by Alex Stenback on January 12, 2009

Last Week:
The Federal Reserve, making good on it’s promise to act to push mortgage rates lower, put a little over $10 Billion (of the $500 billion earmarked) to work in the secondary mortgage market.

The reaction was swift and positive, as 30 year fixed rates immediately dropped almost .5%.  Freddie Mac’s Primary Mortgage Market survey is putting the weekly average at an all time low of 5.01%.  The reality is that 30 year fixed rates under 5% are achievable for many home owners.

I’ll qualify that statement be re-iterating that rates are highly dependent on loan size, transaction type, credit score, and property type, to name just a few of the variables, but however one parses the numbers, these are effectively all time lows for mortgage rates.

This Week:
The economic calendar will give a read on inflation this week, via the Producer and Consumer Price Indices, which print on Thursday and Friday respectively.  Conventional wisdom says that deflation is the larger threat, so we should not see any surprises here.

Wednesday’s Retail Sales Report, and Thursday’s Philadelphia Fed Survey also stand out as potential market movers, and negativity is widely expected.

There’s a preponderance of factors at work - the absence of inflation, an economy on fumes, and the Fed standing ready to deploy an additional $490 Billion – that should keep mortgage rates low, or perhaps send them lower.

Just remember, rates will go up again eventually, and we may see some short term, day to day volatility in the mean time, so don’t get too complacent, or confident, that rates will continue to fall. Nothing lasts forever.
This Week’s Economic Calendar [Barron's]
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