• English
  • Español
AGENTS: Did you know you can share a personalized version of this post? Learn more!
,

Can Rates Go Down Any More?

It appears they CAN and that they WILL. The buzzwords today are Quantitative Easing. It is another of the weapons the Fed has at its disposal to impact the economy, as a whole, and interest rates in particular.

Let me explain. In so far as the Fed has already lowered the rates they charge to lending institutions as much as they can, and they still see a sluggish economy with weak employment numbers and growth, the Fed appears ready to enter a second round of Quantitative Easing (QE). QE is when the Fed begins to buy Mortgage Backed Securities in earnest. They do that by paying more than the market price for MBSs; therefore, pushing interest rates lower.

But why do it? I mean rates are historically low already. Is lowering rates another quarter or half percent going to get someone to buy a house that hasn’t already gotten off the fence? Maybe, but I can’t see the number of people deciding to buy at 4% rates being that significant as compared to those looking to buy at 4.5%. There HAS to be other reasons. Maybe….

  1. The Fed realizes that lower rates will stabilize home prices. Lower rates mean borrowers can borrow more money based on their income, enabling them to pay more for a home which can slow the decline of prices, stabilize prices, and in a few areas even raise prices of homes.
  2. The Fed needs to look like they are doing SOMETHING to energize the economy or get consumer confidence turned around.
  3. The Fed has an agenda other than lower mortgage rates. Maybe the Fed is using the lowering of rates, in an effort to devalue the US Dollar abroad. By lowering the value of the dollar, our products become a better bargain to buyers overseas. So, maybe, just maybe, this is actually an attempt to kick start the economy. If we sell more products overseas, we need to produce more products, hire more employees to make, sell, and distribute those products. Can I smell job growth through QE?

Understand that a weakened dollar will eventually force rates to move up (to re- strengthen the dollar); so, there is going to be a window of even more incredible mortgage rates, but, the window will need to be carefully watched because it can’t be left open forever.

There is no history we can point to predict if QE can or will work. Nor is there any real indication of the level of aggressiveness the Fed will take in this area. (Listen to the rhetoric between now and next week’s release of the Fed’s Beige Book as hints.) It may just be another shot in the dark, but personally, I am in favor of ideas that promote job growth more than government hand outs and bail outs.


Members: Sign in now to set up your Personalized Posts & start sharing today!

Not a Member Yet? Click Here to learn more about KCM’s newest feature, Personalized Posts.

2 replies
  1. Alex Cortez
    Alex Cortez says:

    Great points, Dean. I don’t see the rates going much lower, specially as the difference between 4.25% buyers wouldn’t be that significant (obviously this part is opinion, I dont have any fact to support it) over those who are buying now.

    Reply
  2. Barbara Mocnik
    Barbara Mocnik says:

    Wish the Feds would be a little moe educative to the public about what lowering of interest rates can do to stimulate job growth. We need to be thinking and looking outside the box at all the pieces that might make a difference long term and short term in the over all economy whether it really gives the home buyer a big advantage in the short term or not. I think there are a lot of pieces to the puzzle, each of which is dependent on the whole to make a difference. The American public seems to be beyond thinking this way and want a simple easy fix and there isn’t one. If they understood that overall, maybe not only Americans would gain some confidence in the economy, but so would the global population. Sometimes I think people outside of the US have a clearer view and understanding, along with the patience, to know there isn’t a simple solution to the problem(s) with the economy. Reading articles like yours gives me more hope that there are pieces being put together and tried. Don’t think the administration does a very good job of tooting their own horn to let the public know what is really being planned and accomplished. I do know though dispersement of too much info could be volatile. Just the thoughts of an aging old lady.

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *