Up, Down, or Sideways?
We are speaking of mortgage rates, which continue to move down. Bankrate’s latest survey had them averaging their lowest levels in over four months last week, with the 30-year fixed-rate mortgage averaging 5.25% and the 15-year fixed-rate mortgage averaging 4.64%. Given the recent qualms over unemployment, rates would seem likely to move down further.
And they could, but they could also move up. Last week, Dallas Federal Reserve President Richard Fisher said that the winding down of the Fed’s stimulative monetary policies needed to start as soon as the economy shows signs of sustained improvement. “When it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity to that with which we pursued monetary accommodation,” Fisher said in a speech to the Texas Christian University Business Network of Dallas.
Until Friday, financial markets were heeding Fisher’s words, with derivatives prices suggesting the fed funds rate will rise to 0.75% by mid-2010. (Since December 2008, the Fed has held the rate at a lowest-ever range of 0% to 0.25%.) Granted, the odds of an immediate increase dropped after Friday’s employment report, but the May fed funds contract is still priced for a 72% chance of a 0.5% fed funds rate at the late-April rate-setting meeting.
We think it’s worth heeding the Fed’s intention to “move with an alacrity” once it determines the economy is fixed (and no one can be sure when the Fed will make that determination). We think it is worthwhile for potential borrowers to move with alacrity as well, particularly first-time homebuyers. After all, there is no guarantee that the $8,000 credit will be extended beyond November 30.
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3 Responses to “Up, Down, or Sideways?”
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Thanks Dean for your perspective on a situation that is tough to call.
I agree with your sentiments, thanks very much!
Brian
“Alacrity” – love that word! Thanks Dean for that post and for sharing your thoughts on interest rates. Not a week goes by when I’m not asked at least once or twice where I think interest rates will be in the next year. While it’d be great to have a crystal ball to see into the future, I try to remind my clients to act on what we have now – fantastic interest rates and home prices that are more affordable than they have been for awhile.
Jean
Yes, the big criticism of Alan Greenspan was he let rats stay too low for too long in the early 200’s helping set off the bubble we are recovering from now. Also- watch the inflation rate, if that starts going up watch for rates to move dramatically upward in respones