Make A Mortgage Rate Strategy Ahead Of Today’s Fed Meeting
The Federal Open Market Committee holds a one-day meeting today, its 8th scheduled meeting of the year and 10th overall.
The FOMC is part of the Federal Reserve, the government group that sets U.S. monetary policy. The Fed’s primary policy-setting tool is an interest rate known as the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other.
2 years ago Thursday, in an effort to jump-start the economy, the FOMC met and voted to lower the Fed Funds Rate to as close to zero percent as possible without actually going to zero percent; the benchmark rate was prescribed to a range of 0.000-0.250 percent.
The Fed Funds Rate had never been set so low before, but ever since, it’s been held to that range. It will likely be there until early-2011, too, but that doesn’t mean that mortgage rates won’t change today when the Fed adjourns today.
Because the Fed Funds Rate has been so low for so long, businesses and consumers have been able to borrow money cheaply. As a result, both capital and household spending have been on the rise lately, creating tailwinds for the economy.
The Fed is expected to acknowledge this today which, in turn, should lead mortgage rates higher. This is because, in the current recovery cycle and until markets find balance, what’s good for the economy tends to be bad for rates in our North Georgia Mountains.
The Fed’s press release today will be a focal point for markets. Talk of higher-than-expected inflation or better-than-expected growth, and mortgage rates should rise. Talk of a slowdown should lead rates lower.
Either way, we can’t be certain what the Fed will say — or do — this afternoon. If you’re floating a mortgage rate, the safe move is to lock before 2:15 PM ET today.
Understatement : Freddie Mac Says Mortgage Rates Rose Last Week
It’s been a wild 30 days for home affordability.
Since the Federal Reserve’s November 3 press release, in which our nation’s central banker committed $600 billion to bond markets, mortgage rates have leaped, moving quicker than the news can report them.
This week is a terrific example of that.
Today, newspaper headlines in Georgia and around the country read that mortgage rates rose 0.06% on average over the past 7 days, and that average loan fees remain unchanged at 0.8 points. The data is based on Freddie Mac’s Primary Mortgage Market Survey, a weekly poll of more than 100 lenders around the country.
Unfortunately for Blairsville and Blue Ridge Home Buyers and other local rate shoppers, the Freddie Mac figures are low. Both mortgage rates and fees rose by more than what’s being reported.
Freddie Mac’s data is not real-time. It’s out of date for today’s pricing.
According to Freddie Mac, the survey’s methodology has it collecting rates from participating lenders between Monday and Wednesday, averaging the results, and then publishing that data Thursday late-morning. The problem there, as you know if you’ve shopped for a mortgage rate, is that mortgage rates change all day, every day.
Monday’s rates are unrelated to Wednesday’s rates, yet both are included and given equal weight by Freddie Mac. Some weeks, it’s not a problem; rates are relative static.
This week was not such a week.
Rates were jumpy Monday and Tuesday, rising and falling throughout the course of the day. Action like that is normal. But Wednesday, mortgage bonds put forth their third-worst daily showing of the year. Rates rose by as much as 3/8 percent between the market open and close, with the bulk of the sell-off coming late in the day. In other words, after the deadline of Freddie Mac’s survey.
Mortgage lenders accurately reported their rates to Freddie Mac, but they reported them before the market turn a turn for the worse.
The lesson is that mortgage rates are time-sensitive and can’t be captured by a weekly, average survey. When you need to know what mortgage rates are doing right now, the best place to check is with your loan officer. Otherwise, you may just get yesterday’s news.
September’s Case-Shiller Index Reflects A Slowing Housing Market
Standard & Poors released the September Case-Shiller Index Tuesday. The Case-Shiller Index is a home-value tracker. The report shows home prices down 0.7% from August and values fading, in general.
Case-Shiller representatives assessed the findings as “another weak report; weaker than last month”, citing deterioration in 18 of 20 tracked markets. Upward pricing momentum from the summer is slowing and values remain 30% off the market’s June 2006 peak. It could spell bad news for home sellers in Hiawassee, Blairsville and Blue Ridge this winter.
That said, the Case-Shiller Index is imperfect; its methodology flawed. The index is not meant for use by individual buyers or sellers — for 3 reasons.
First, the Case-Shiller Index reports on a 2-month delay. Today is December 1 and we’re discussing data from September. In the 8 weeks since, the economy has shifted to a net jobs gainer, and the Federal Reserve has committed to $600 billion in re-investment. These are major developments that weren’t a part of September’s housing market, but are relevant today.
Especially because employment is largely believed to be a keystone to housing.
Second, the Case-Shiller sample set is limited to just 20 cities nationwide. This means that most U.S. home sales are specifically not included in the Case-Shiller Index’s monthly findings.
And that ties into reason number three — all real estate is local. No matter what the Case-Shiller Index says about the country, what matters to your local market is what’s happening in your local market. Each neighborhood has its own housing economy and that’s something that can’t be captured by a national report.
Fed Minutes Help Push Mortgage Rates To 4-Month High
The Federal Reserve released its November 2-3, 2010 meeting minutes Tuesday afternoon. Mortgage rates in Georgia have been on the move since.
The Fed Minutes is a comprehensive review of Federal Open Market Committee meetings; a detailed look at the debates and discussions that shape our country’s monetary policy. The report is published 3 weeks to-the-day after the FOMC adjourns.
Fed Minutes add depth to the briefer, more well-known “statement” to the markets which is issued upon adjournment. As a comparison:
- The November 3 statement contained 497 words
- The November 3 meeting minutes contained 6,623 words
If the Fed Statement is the executive summary, the Fed Minutes is the novel. And, the extra words matter.
When the Federal Reserve publishes its minutes, it gives clues about the groups next policy-making steps. For example, in November’s minutes, it’s revealed that the Fed discussed setting inflation targets for the economy; holding occasional policy briefings for the press; and, working to set yields on instruments such as the 10-year Treasury note.
In addition, the Federal Reserve acknowledged a video conference hosted October 15, the second such “unannounced” meeting of the year. The other was May 9, 2010.
Bond markets have not taken kindly to the Fed Minutes. The minutes show a propensity toward Fed “action”, most of which markets believe to be inflationary. Inflation leads to higher mortgage rates and that’s exactly what we’ve seen.
As compared to Tuesday morning, mortgage applicants in Blairsville are finding conforming and FHA mortgage rates to be higher by as much as 0.375 percent. In “real life” terms, assuming a 30-year term, that’s an extra $264 in annual mortgage payments per $100,000 borrowed.
If you’re still rate shopping, consider getting locked today. As a result of the recent shift, mortgage rates are now at a 4-month high.
Could 4 Percent Rates Soon Be Gone?
If consumer spending is a key to economic recovery, the nation is on its way.
Monday, the Census Bureau released national Retail Sales figures for October and, for the second straight month, the data surged past expectation. Last month’s retail figures jumped 1.2 percent — the largest monthly jump since March — as total sales receipts climbed to a 2-year high.
Consumer confidence is rising, too. Though still below the long-term trend, confidence in the future up-ticked in October.
The current confidence reading is now double the low-point from February 2009.
It’s no surprise that both Retail Sales and Consumer Confidence are higher. They correlate in a common-sense-type manner. When consumers are more confident in the economy, they’re more likely to spend their money. This, in turn, leads to more purchases and rising retail receipts.
Unfortunately, for home buyers and rate shoppers in Blue Ridge, Blairsville and Ellijay it also leads to rising mortgage rates.
Because consumer spending accounts for two-thirds of the economy, spending growth leads to economic growth. But it’s been a lack of growth that’s kept mortgage rates this low.
When the growth starts, the low rates end. It’s why mortgage rates have added as much as 1/2 percent over the past 10 days. Consider the recent “good news”:
- Retail Sales made a 2-year high in October
- Existing and New Home Sales showed big improvement in September
- Jobs growth returned in October
The days of 4 percent, 30-year fixed rate mortgages may be nearing its end. If you’re still floating a mortgage rate or thinking of buying or refinancing, consider the impact of rising rates on your budget.
The time to act may be sooner than you had planned.
