Mortgage Rates — And Home Affordability — At The Whim Of The Federal Reserve
The Federal Open Market Committee starts a two-day meeting today, the third of its 8 scheduled meetings this year.
The FOMC is a special, 12-person committee within the Federal Reserve. It’s led by Fed Chairman Ben Bernanke and the group is responsible for voting on our nation’s monetary policy. This includes setting the Fed Funds Rate, the rate at which banks borrow money from each other overnight.
The general public tends to confuse the Fed Funds Rate for “mortgage rates” but, as shown in the chart at top, the two interest rates are very different. There is no direct correlation between the Fed Funds Rate and everyday mortgage rates in the North Georgia Mountains.
Since 1990, the two benchmark rates have been separated by as much as 5.29 percent, and have been as close as 0.52 percent.
Today, the separation between the Fed Funds Rate and the national average for a standard, 30-year fixed rate mortgage is 4.625 percent. This spread will widen — or shrink — beginning 12:30 PM ET Wednesday. That’s when the FOMC adjourns and releases its public statement to the markets.
According to Wall Street, there’s a 100% chance that the FOMC leaves the Fed Funds Rate in its current “target range” of 0.000-0.250 percent, the same range in which it’s been since December 2008. Depending on the verbiage in the press release, plus the comments of Fed Chairman Ben Bernanke in his scheduled, 2:15 PM ET press briefing, mortgage rates aren’t expected to steady as well.
If the Fed projects higher growth in late-2011/early-2012, or hints at new market stimuli, expect mortgage rates to rise on concerns about inflation. Inflation is bad for mortgage rates, in general.
On the other hand, if the Fed indicates that the economy is slowing down, or that it plans to withdraw its existing, $600 billion bond market stimulus, look for mortgage rates to fall.
It’s hard to be a home buyer in the North Georgia Mountains area when the Federal Open Market Committee meets. There’s just so much that can change mortgage rates and rising mortgage rates can affect purchasing power in a flash.
In the 6 months since November 2010, home affordability is off 9%.
So, if you’re shopping for mortgages, or just floating a rate, consider getting locked in before the FOMC issues its press release Wednesday. Once the statement hits, mortgage rates could soar.
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Lower Unemployment And Higher Growth For 2011 and 2012
The Federal Reserve released its January 25-26, 2011 meeting minutes Wednesday afternoon. Georgia Mortgage Rates have been in flux since.
Fed Minutes are comprehensive recaps of Federal Open Market Committee meetings; a detailed look at the debates and discussions that shape our nation’s monetary policy. As such, they’re released 8 times annually; 3 weeks after the most recent FOMC meeting.
Fed Minutes can be viewed as the unabridged version of the succinct, more well-known “Fed Statement” that’s released to markets immediately post-adjournment.
Just how much more lengthy are Fed Minutes?
- The January 25-26, 2011 statement contains 395 words
- The January 25-26, 2011 meeting minutes contains 6,916 words
If the Fed Statement is an executive summary, the Fed Minutes is a novel. And, the extra words matter.
When the Federal Reserve publishes its minutes, it’s offering clues about the group’s next policy-making steps. As an example, in the January minutes, the Fed improved its outlook for economic growth; lowered its projections for the Unemployment Rate; and removed its concern for deflation.
In addition, the Fed discussed the potential for food-and-energy-cost-induced inflation, but labeled it as a minor economic risk at this point in time.
Bond markets are mixed on the text of the Fed Minutes.
Although the Fed indicates a willingness to allow inflation to occur, it appears ready to act in case inflation goes too high. One way that the Fed responds to rising inflation is to raise the Fed Funds Rate and many economists believe this will start happening by late-2011 or early-2012.
A Simple Explanation Of The Federal Reserve Statement – January 26, 2011
Today, the Federal Open Market Committee voted 10-to-0 to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that since December’s meeting, economic growth is ongoing, but at a pace deemed “insufficient” to make a material impact on the jobs market. In addition, the Fed said household spending “picked up” late last year, although it continues to be held back by joblessness, tight credit and lower housing wealth.
This is similar to the language used in the FOMC’s November and December 2010 statements.
Also like its last two statements, the Fed used this month’s press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package in place.
And finally, of particular interest to North Georgia Mountain home buyers and mortgage rate shoppers, for the second straight month, the Federal Open Market Committee’s statement contained an entire paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, while fostering maximum employment.
The Fed acknowledges progress toward this goal, but calls that progress “disappointingly slow”. Inflation is too low right now, and joblessness too high.
Over time, the Fed expects both measurements to improve.
Mortgage market reaction to the FOMC has been positive since the statement’s release. Mortgage rates in The North Georgia Mountains are unchanged, but poised to improve.
The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.
What Will The Feds Say About Mortgage Rates Today?
The Federal Open Market Committee begins a 2-day meeting today in Washington D.C. It’s the group’s first meeting of 2011 — one of 8 scheduled for the year.
The Fed meets every 45 days, on average. Its last meeting was December 14, 2010.
Rate shoppers and home buyers should make a note. Mortgage rates and home affordability could change dramatically beginning tomorrow afternoon.
Because Wall Street watches FOMC meetings closely, so should you. The meetings provide insight on the future of U.S. monetary policy, as told by the nation’s central banker. Investors make trades based on the FOMC’s commentary which is one reason why mortgage rates tend to undulate through the hours leading up to the FOMC’s adjournment, and the days immediately after.
Wall Street is shifting old bets, and placing new ones.
A terrific example of this is what happened after the Fed’s November 3, 2010 meeting.
In its post-meeting press release, the Federal Reserve announced a new, $600 billion, market-bolstering plan dubbed “QE2″. Wall Street had widely expected the Fed to create the program, but had underestimated its size.
Starting a $600 billion program sparked fears of a Fed-led inflation run, which, in turn, caused mortgage markets to deteriorate in a hurry. In the 3 days following the program’s announcement, mortgage rates spiked to multi-month highs and have not since recovered.
QE2 marked the beginning of the end of the Refi Boom and low rates. Today, conforming rates in Georgia are relatively low as compared to higher, but are much higher than they were prior to the FOMC’s November 2010 meeting.
Then, December’s FOMC meeting did little to change the direction of rates. We shouldn’t expect that January’s will, either. After the FOMC’s 2:15 PM ET adjournment Wednesday, mortgage rates should resume climbing, as they have done for the past 10 weeks.
If you’re shopping for a mortgage rate, therefore, the prudent move is to lock prior to Wednesday’s FOMC adjournment because, after once the Fed’s outlook is released, it will be too late.
Mortgage Rates On Hold For Now
The Federal Reserve released its December 14 meeting minutes Tuesday afternoon. There wasn’t much there to disturb mortgage markets, thankfully.
The “Fed Minutes” is an official recap of the most recent meeting of the Federal Open Market Committee. It’s published 8 times annually, 3 weeks after the FOMC adjourns.
The Fed Minutes is similar to the meeting minutes released after a corporate conference or condo association gathering in that they provide additional details about the conversation and debate that occurred between meeting attendees.
The Fed Minutes are a lengthy companion to the Federal Reserve’s brief, more well-known, post-meeting press release. But, whereas the press release is measured in paragraphs, the minutes are measured in pages.
Here is some of what the Fed discussed last month:
- On inflation : Core inflation levels “trend lower”; disinflation risks are low.
- On housing : The market is still “quite depressed”; demand is “very weak”.
- On stimulus : The Fed will stick to its $600 billion support plan
In response, conforming mortgage rates in Georgia are unchanged today.
The no-change in rates is welcome news for this month’s home buyers and other people wanting to get a jump on the “Spring Buying Season”. Mortgage rates have been trending higher since November, erasing 7 months of gains in 7 weeks, and rapidly approaching the psychologically-important 5 percent figure.
Currently, Freddie Mac reports the average 30-year fixed mortgage rate as 4.86%.
As compared to November, mortgage rates are higher. As compared to history, however, mortgage rates remain low. If you are still floating a rate, or have otherwise not locked, your opportunity may be ending. Once the economy moves to higher gear, mortgage rates will be among the first of the casualties.
