Fed raises rate, banks move from bottle feeding to sippy cup and what it means for you

Market movement

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.

 

Apply for a mortgage loan

 

 

eho

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2990 Jamacha Road #136  El Cajon CA 92019

Nevin Williams NMLS #69651 

 

Comments

I love your title Nevin! That about says it all, doesn't it?!

Posted by Wanda Kubat-Nerdin (Prado Real Estate, St. George, UT 435.632.9374) 5 months ago

This should be a huge eye opener for anyone who is sitting on the fence wondering when is the right time to refinance their present home or consider financing a new home.

Great post Nevin.

Message to the fence sitters: Don't try to time the market. If you do, you'll miss the boat and find yourself not being able to qualify for the loan you need. Or, if you do qualify, you'll certainly pay more for it in the long run. The time is NOW. Call Nevin for more details.

Posted by Craig Rutman North Carolina (Raleigh Area) Realtor (Home Buyer and Seller Specialist) 5 months ago
Great commentary Nevin. Love the sippy cup analogy. It sums it up perfectly! ~Doug
Posted by Cari Anderson (Diversified Mortgage Group) 5 months ago
LOVE the title and info! I am reblogging...
Posted by Andi Grant | Long Beach, Lakewood, Downey CA Real Estate | Prudential 24 HR (310-508-4354 | www.AndiGrant.com) 5 months ago

Wanda - Thanks!  LOL

Craig - They say good things come to those who wait....but not in this case unless your are the bank.

Doug - LOL  I thought it was funny!

Andi - Thanks!  Reblog all you want to! LOL

Posted by Nevin Williams, Conventional,jumbo & FHA (First Priority Financial,specialize in jumbo & conventional) 5 months ago

They're getting out of diapers and into Huggies Pull Ups pretty soon too!  ;-)  How fast they grow up and out . . . of MBS.

Posted by Carla Muss-Jacobs Principal Broker/Owner EBA Portland LLC | www.EBAPortland.com | (Exclusive Buyers Agent Beaverton Portland) 5 months ago

Nevin, thanks for bringing this to light. We need to spread the word asap before the marginal buyers are pushed out of this market. Thanks for allowing the reblog. I couldn't have written this any better and am going to reblog it. BTW - it was great talking with you last weekend!

Posted by Anthony Ebright - Santa Rosa Home Loans - Purchase and Refinance Mortgages (FHA, VA, Jumbo, Conforming Loans - Wells Fargo Home Mortgage) 5 months ago

Nevin - Interest rates usually follow discount rates slowly. Thanks for sharing a very good blog.

John

Posted by JOHN PUSA 01044712 (Citiwide Realty) 5 months ago

Carla - you said it beautifully!

Anthony-  Thanks for the re blog!  I also enjoyed our conversation.  Hope to meet up wth you soon

John - Thanks for visiting my blog.  have a great weekend!

Posted by Nevin Williams, Conventional,jumbo & FHA (First Priority Financial,specialize in jumbo & conventional) 5 months ago

Still not drinking independently with a real cup!  So well written.  We truly do need things to stablize in the lending department. 

Posted by Judi Barrett Integrity Real Estate Services, 580-212-5946 5 months ago

Judi - thank you!  I'm tired of babying the banks!

Posted by Nevin Williams, Conventional,jumbo & FHA (First Priority Financial,specialize in jumbo & conventional) 5 months ago

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