In view of a weakening of the economic outlook and increasing downside risks to growth, the Federal Reserve board on December 16^th dropped the target short-term interest rate, to .25%, the lowest level in history. This basically means that banks can borrow money from each other at relatively no cost.  This now pushes the Fed’s monetary policy to the limit. The short term interest rate drop has a direct effect on some credit card rates as well as short term credit programs, like home equity lines of credit. CLICK HERE for the official press release.

While this rate cut didn’t directly have an effect on home mortgage rates, the overall market has anticipated the Fed’s next move of buying mortgage backed securities and/or treasury bonds in an effort to push bond prices up, thus lowering home mortgage rates. 30 year fixed rate mortgage are now around 5% and are predicted to dip lower. Interested in refinancing or getting pre-qualfied, call Randall Fowlkes at 630-399-9291 or email rfowlkes@ksgmac.com.

There has hardly been a better time for current homeowners to refinance their mortgages or for 1^st time buyers to finally buy their dream home. If you or someone you know can benefit from this opportunity, give me a call.

“I KNEW THE RECORD WOULD STAND UNTIL IT WAS BROKEN.” -Yogi Berra.

And while last week’s Jobs Report wasn’t the worst record breaker of all time, it showed a loss of 533,000 jobs during the month of November, which represented the most job losses the US has seen in 35 years. And adding more pain to the Report were heavy downward revisions for September and October, which erased an additional 199,000 jobs. In addition, last month was only the fourth time in 58 years that our economy lost over 500,000 jobs.

So what does this mean for Bonds and home loan rates? We first have to acknowledge that we are not in a typical trading environment, where weak or negative economic reports always lead to improved pricing for home loans and vice versa. The dynamics of hedge funds de-levering - where fund managers are selling all types of securities with whatever timing they need to, in order to raise capital - have caused unprecedented volatility of late, and it is not quite clear when that will end.

The Fed has indicated that they would like to be a buyer of Mortgage Bonds, which has resulted in attractive, lower rates right now. But as stated above, the trading environment is extremely volatile, and opportunities to capitalize on lower rates that make sense should be taken advantage of. There have been recent rumors of interest rates being brought down towards 4.5% by the Treasury. This irresponsible release included no definitive plan, no indication of who might qualify, or what the restrictions would be. Like many other recent legislative “solutions”, the restrictions might be very tight, with income limits set very low, and as a result, helping very few people. Remember, it may make sense for you to act now, and take advantage of current historically low rates…with the possibility of refinancing should rates decline further.

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It is important for both new homebuyers and homeowners who want to refinance to understand how to lock in an interest rate when applying for a mortgage loan. Understanding how rate locks work prepares you to evaluate your options.

While you are in the process of applying for your mortgage loan, interest rates will most likely fluctuate from day to day and week to week. If you want assurance that the wonderfully low interest rate on your loan will not increase while you are waiting for loan approval, ask for a rate lock. A conventional rate lock is a guarantee from the lender that your mortgage will carry a particular interest rate, with specific, predetermined points and fees.

The interest rate is “locked in” for a specified period of time, usually thirty days. When you call a lender for a rate quote, ask how long that rate will last for. If you think you might need more than thirty days to complete your home purchase or refinance, tell your lender how many days you will require, and they will give you an adjusted rate quote.

Rate locks are especially useful if interest rates are on the upswing, and you are concerned about ending up with higher monthly payments. If you cannot afford the risk of a further interest rate increase, lock in your loan rate now.

Get more information about the Real Estate Market and Mortgage Rates Here!

“THE IMPORTANT THING IN THIS WORLD IS NOT SO MUCH WHERE WE STAND, AS IN WHAT DIRECTION WE ARE MOVING.” -Oliver Wendell Holmes.

And when it comes to the direction our economy may be moving, there was some surprising news from the Fed last week that the “Minutes” from their October meeting revealed.

After years of being concerned about inflation, the Fed is now concerned about deflation. So what exactly is deflation? Deflation is when prices drop, which generally is due to lack of demand, and therefore lack of pricing power. With the economy slowing down, we are hearing economists forecast that we may be in for a deflationary recession. In a deflationary environment, investors flee into fixed instruments like Bonds, because the fixed payment received would actually buy them more goods and services over time as prices decline.

So what does this mean for home loan rates? Remember, home loan rates improve as Bond pricing moves higher - and more demand for Bonds would mean higher prices for Bonds. In the spring of 2003, when Alan Greenspan uttered the “D” word, deflation, Bonds rallied 400bp in just a few weeks, bringing a significant drop in home loan rates. Of course, the economy is different right now, but as more money may be headed towards Bonds in a deflationary environment, we could again see a significant improvement in home loan rates down the road. Read the rest of this entry »

“What do you need a fancy suit for Charlie, you got no job to wear it to”. From the 1984 movie, The Pope of Greenwich Village. And there are a lot of fancy suits not being used, due to the massive job losses of late.

The Labor Department reported that 240,000 jobs were lost in October, which was worse than the expected loss of 200,000 jobs. In addition, the Unemployment Rate jumped to 6.5%, up from last month’s read of 6.1% and reaching the highest unemployment rate since 1994. And if the current numbers weren’t bad enough, there were heavy downward revisions to August and September numbers, which erased an additional 179,000 jobs. So far in 2008, a total of 1.18 million jobs have been lost, with 651,000 job losses coming in just the past three months. Look for things to get worse before they get better, as the unemployment rate will likely top 7% soon.

Friday’s Jobs Report was brutal and would typically nudge the Fed to cut their benchmark rates in an effort to spur on the economy. But with the Fed Funds Rate already at 1%, the Fed doesn’t have much more room to cut. This means that Stocks, which worsen on poor economic news, will likely continue to struggle as a result. Read the rest of this entry »

“I’m always making a comeback but nobody ever tells me where I’ve been.” Billie Holiday. Making a comeback was exactly what Bonds and home loan rates attempted last week, after approaching some of their worst levels this year.

While the Bond market was closed last Monday in Observance of Columbus Day, the early part of the week wasn’t short of market-impacting news. On Tuesday, the Bush Administration, announced a plan to use $250 billion of the $700 billion financial rescue bill recently passed by Congress to buy directly into American banks. The government will begin by buying stock in nine of the largest banks including Bank of America, JPMorgan Chase, and Citigroup.

Why did the government do this? Because the financial crisis is due to over-leverage…that means the ratio of outstanding loans to capital is too high. If left unchecked, this can lead to the failure of institutions. And it has already taken a great toll. The only way to repair this is by reducing the leverage ratio, or “de-leveraging”. That means sell off loans or increase capital. The Fed’s plan helps this on both sides as they can be a buyer of some loans as well as an investor in some banks. Read the rest of this entry »

TO PASS OR NOT TO PASS? That was indeed the question of the week…and the final answer came on Friday, as the House of Representatives followed the Senate’s lead and passed the $700 Billion rescue plan.

The week began with the House initially voting against the plan on Monday, causing Stocks to plunge in their final minutes of trading to their single worst loss in the 112-year history of the Dow Jones. However, on Wednesday, the Senate passed a revised rescue plan that included some tax breaks and an increase in FDIC protection from $100,000 to $250,000. This was the version the House subsequently passed and President Bush signed into law on Friday.

Why was it important for the plan to pass? Simply put, the plan frees up some of the frozen credit that consumers and small businesses across the country need to survive. As examples, even auto loans were becoming harder for consumers to qualify for…and on the business side, many retail operations have had difficulty in financing their inventory. Credit issues like these are not good for the economy, confidence, and consumer spending, and the rescue plan was passed to help matters. Read the rest of this entry »

Housing At Bottom, Recovery Slowed By Financial Turmoil

Economist John Tuccillo, president of JTA Associates and former chief economist for the National Association of REALTORS®, told the packed crowd in the closing session of the IAR Convention that the housing market is ahead of the rest of the economy.

“Over 90 percent of residential real estate markets have bottomed out, some are still bleeding, but most have hit the bottom and the foreclosure numbers still coming out are old numbers, what’s happened in the past,” said Tuccillo. “But it the housing market’s recovery will be slower that it should have been due to the stalled economy and the problems in the financial sector.”

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