Good Saturday morning afternoon! We apologize for not being as active on our Twitter and Facebook accounts the past few days. During our tour of New England & Western NY, we were hurdling one obstacle after the other: from cancelled flights, to non-stop-middle-of-the-night-blizzard driving (it's a word, look it up), to abominable snowmen-- you name it, we faced it. But [...]
There is a very interesting cultural change taking place throughout the country. And it is the direct result of the current challenges in the housing sector. It seems that there is a wave of support for the concept of walking away from your financial obligations in regard to your mortgage. The stigma attached to those who become delinquent on their [...]
First, let’s look at today’s announcements by the Fed….
- As expected, they held the Fed Funds Rate constant (more on what that means later).
- They re-affirmed their prior pledge to stop purchasing Mortgage Backed Securities by March 31.
- They said that they expect rates to stay in this range for an extended time.
As was presented on Tuesday, by the KCM Crew in this space, the elimination of the major purchaser of MBSs is a precursor to HIGHER RATES….likely in a quick and dramatic fashion. People, DO NOT BE CONFUSED. Many of you will hear that The Fed said “rates will stay low for an extended period of time”, so how can mortgage rates go up???
There is a popular misconception that The Fed controls mortgage rates. Alas, they do not.
The Fed controls The Fed Funds Rate which is merely an overnight rate at which banks can borrow from The Fed (or each other) to keep them sufficiently liquid. The Fed Funds Rate is the basis of a bank’s Prime Rate (which is typically 3% above The Fed Funds Rate) and is primarily the rate banks charge their good commercial customers who borrow money on lines of credit (the bank makes a 3% profit margin).
There are hundreds of news articles and blog posts each day pontificating on the current housing market. Many of these stories try to examine pricing to help determine whether home values are appreciating or depreciating. The authors want to try their best to call the 'bottom' of the market based on the data available. However, there is no shortage of house [...]
The Fed is scheduled to exit the housing market this spring. The Home Buyer Tax Credit ends on April 30, 2010 (the date the house must be in contract). The Fed has already announced that their program purchasing mortgage-backed securities will expire on March 31, 2010. Most anticipate a quick and dramatic rise in interest rates at the conclusion of that program.
The question that faces the industry is whether housing demand has any hope of continuing after these programs expire. I think recent history is a good indicator.
The original end date of the Tax Credit was to be November 30, 2009 (the date you needed to close on your purchase to be eligible for the credit). Most experts did not believe the federal government would extend the credit (which it did). That meant that, as buyers were making a purchasing decision, they needed to buy a house that they could close on by November 30.
Reports coming out now show that when the original tax credit was set to expire there was a rush to purchase. After that original rush, demand faded rapidly.