And the FED…does nothing.
The markets anticipated the FOMC to leave the Fed Funds rate alone at 2% and that’s just what they did. The markets are reacting accordingly by not swinging drastically either way. The DOW is enjoying triple digit gains while oil has been under $120. What does this mean to mortgage interest rates?
As you know, the FOMC does not directly control mortgage interest rates as mortgage interest rates are based on bonds–mortgage backed securities (MBS). Traders will react to what the FOMC does and does not do and THIS will impact mortgage interest rates.
The FOMC press release states:
“Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports”. I’m wondering how much of the growth in consumer spending is from the economic stimulus checks?
This statement is quickly followed with: “…labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters”.
Bonds react negatively to inflation, I’m anticipating that we will see mortgage rates continue to trend higher. Here’s a bit from the FOMC regarding the “i-word”:
“Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”
You can read today’s FOMC statement here.
PS: As the Prime Rate is tied to the Fed Funds Rate, your HELOC is unchanged for now.
Posted: August 5th, 2008 under General Real Estate, News.
Tags: Fed-Funds, fomc, inflation, prime-rate
About the Author: Rhonda Porter
- Author's website: http://www.mortgageporter.com
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Comments
2.
Comment
from Q-diddy
Time August 5, 2008 at 1:02 pm
So this is a little bit off topic, but has anyone used Zillow and tracked the reliability of the “zestimator” I also think it’s wierd how some homes that are currently for sale do not have a zestimate. Why is that?
3.
Comment
from Rhonda Porter
Time August 5, 2008 at 1:10 pm
Q-diddy, “a bit” off topic? LOL my gosh. Is the zestimator the same as the zestimate? You’ll need to ask David G @ Zillow. I think if you click your heals together three times and say “zillow zillow zillow” he’ll appear to reply on this blog. (He’s EVERYWHERE). 
4.
Comment
from Rhonda Porter
Time August 5, 2008 at 1:19 pm
We have the DOW closing up over 330 points, oil down to about $118 and mortgage rates trending higher (I’m getting rate sheets for the worse right now).
5.
Comment
from 3rd Generation
Time August 5, 2008 at 3:56 pm
“The markets are reacting accordingly by not swinging drastically either way.”
The dow swings 331+ points in a single session based on the lies and mistruths of a failed fed and a disasterous money policy that has Grandma fixed-income selecting her nourishment based on which cat food is cheaper at Wal-Mart while the Wall Street Boyz are being bailed out by-the-day and the writer makes the above statement?
What then, constitutes a dramatic swing? 1,000 points, 2,000 points 10,000 points?
then this statement of genius as a closer:
“I’m wondering how much of the growth in consumer spending is from the economic stimulus checks?”
Are you SERIOUS or just kidding around?
Oops, I forgot, REALTOR 6% mentality at work…
Wow, things ARE different in Washington State…
6.
Comment
from Rhonda Porter
Time August 5, 2008 at 4:02 pm
3rd Generation, when I wrote the post (immediately after the decision was announced), the markets had not yet reacted. Comment 4 is when the markets closed.
Thanks for reading RCG.
7.
Comment
from Greg Perry
Time August 5, 2008 at 4:15 pm
“Oops, I forgot, REALTOR 6% mentality at work…”
You bet! Give a Realtor any 6 digit number and they can come up with a solution at 6% and 3% with lightning speed (much faster than any calculator).
Now Rhonda, on the other hand, is a mortgage professional and much, much better with numbers…..
Oops!
8.
Comment
from Jillayne Schlicke
Time August 5, 2008 at 4:56 pm
Hi 3rd Gen,
If Grandma shops at Petsmart or Petco, she can build rewards points towards future purchases. My cats preferred Iams but they’re both dead now so what do I know.
Perhaps we should go long on cat food.
9.
Comment
from Kary L. Krismer
Time August 5, 2008 at 5:19 pm
Things are apparently different in Washington state. I was just down at Southcenter, and all I could keep thinking was–if this is a recession . . ..
10.
Comment
from chillyc
Time August 5, 2008 at 7:43 pm
Thanks for posting this above that playgirl pic. It was quite a surprise when I opened RCG at work and that came up. Not quite work safe!
11.
Comment
from Roger Ingalls
Time August 6, 2008 at 3:12 am
Re #8
Something you may want to file away for future reference for uses of the aforementioned cats…
http://www.ananova.com/news/story/sm_1534821.html
I really shouldn’t do this so late at night…
12.
Comment
from David G from Zillow.com
Time August 6, 2008 at 8:17 am
Thank you Rhonda for clicking your heels! Your prediction was spot on - rates are way up this morning!
Q-diddy -
(Most) homes that are for sale do have a Zestimate - you just need to click through the address on the map and you’ll find the Zestimate on the home’s detail pages. The list price does replaces the Zestimate on the map pages when a home is for sale and that’s because the list price is far more important than the Zestimate when the home’s on the market. You’ll find Zillow’s accuracy measurements for all WA counties here: http://www.zillow.com/howto/DataCoverageZestimateAccuracyWA.htm. Zillow’s median error in King County is 7,7%.
13.
Comment
from deeplennon
Time August 6, 2008 at 10:06 am
Rates to go up another quarter point in October?
http://www.bloomberg.com/apps/news?pid=20601087&sid=awmXieu6LR84&
14.
Comment
from Rhonda Porter
Time August 6, 2008 at 10:17 am
deeplennon, Fannie Mae is adjusting their current “risk based” pricing effective October 1, 2008. Rates will still be based on bonds (mortgage backed securities) plus Fannie Mae’s add.
Dan Green, one of my favorite mortgage bloggers, did a great post on this: http://www.themortgagereports.com/2008/08/fannie-mae-adds.html
15.
Comment
from Q-diddy
Time August 6, 2008 at 10:30 am
Rhonda-
You continually refer to rates being dependant on Fannie and MBS, but I hope you do realize that these 2 things are mearly part of a bigger picture.
Fannie raises money to lend, so the rate it charges depends on the the rate it recieves from investors through the sale of debentures.
Private MBS typically use Fannie as a reference, but it doesn’t neccessarily move 1 for 1 with Fannie.
Bottom line is, what rate banks and GSE’s charge depends on their ability to raise funds.
16.
Comment
from Q-diddy
Time August 6, 2008 at 10:54 am
David G-
I was able to find at least 3 homes (could probably find more) with interesting sale prices this morning.
Home 1: Cougar Mt. Area
Asking price: $2,900,000.00
Zestimate: $2,138,500
Difference: ~36%
Home 2: Bridle Trails Area
Asking price: $2,800,000.00
Zestimate: $1,659,000.00
Difference: ~69%
Home 3: Lakemont Area
Asking price: $2,495,000.00
Zestimate: $1,764,000.00
Difference: ~41%
Either the owners are asking way too much or zestimates are way off or both. What about homes for sale that don’t show the zestimate?
17.
Comment
from biliruben
Time August 6, 2008 at 11:08 am
You’re going to see bigger errors in the high-tail, because those houses tend to be unique and hard to comp, is my guess, Q.
That said, if I’m spending 3 mill, I ain’t doin’ it in the boonies.
18.
Comment
from Q-diddy
Time August 6, 2008 at 12:22 pm
Biliruben-
I wonder if Zillow is working on some kind of model to address these homes.
Where’s David G when we need him…
19.
Comment
from David G from Zillow.com
Time August 6, 2008 at 1:58 pm
Q-diddy -
Bill’s right; we do see far bigger variances on the high end … but then again those are list prices so we’re going to have to wait and see … According to a study we released today, it’s clear that most homeowners still have unrealistic expectations of their house’ value (http://www.zillowblog.com/every-houses-value-is-dropping-except-mine/2008/08/) Remember that Zestimates are estimates and errors in the public records will throw them off.
The only homes that should not have Zestimates would be a very small percentage of the homes on Zillow that were added by their owners (i.e. are not in our public records data feed.) You shoulld not be seeing many of those around Seattle - if you want me to look into any of these just ping me [davidg AT zillow DOTCOM]
20.
Comment
from Kary L. Krismer
Time August 6, 2008 at 10:29 pm
Part of the problem on the high end is they don’t turn over that often, and Zillow becomes more inaccurate the longer it’s been since a sale.
Also, some of the high end stuff has never been sold–it was owner built–so all they have to go on is the assessor stats.
22.
Comment
from Sniglet
Time August 8, 2008 at 11:02 am
Rhonda,
Do you have any idea what the significance of Fannie Mae’s decision to pull out of the Alt-A market will be?
Does this mean we should expect to see additional loan products disappear? Which kinds of loans will this impact?
http://calculatedrisk.blogspot.com/2008/08/fannie-mae-push-back.html
23.
Comment
from Sniglet
Time August 8, 2008 at 11:45 am
Rhonda,
Do you have any idea what the implications of Fannie Mae’s decision to stop making Alt-A loans is? Are there particular types of products that would be impacted? To my knowledge Fannie Mae doesn’t accept “no-doc” loans, so what else could they be talking about?
http://calculatedrisk.blogspot.com/2008/08/fannie-mae-push-back.html
24.
Comment
from Rhonda Porter
Time August 8, 2008 at 3:46 pm
Sniglet, I’ve found that most lenders have pulled back the Alt-A type products all ready such as stated income, no income verified (NIV) and no-ratio. Here’s kind of an interesting link: http://www.mortgageorb.com/e107_plugins/content/content.php?content.263
“As of 2003, nearly 60% of all Alt-A production was securitized by, or credit enhanced by, Freddie Mac and Fannie Mae, according to a market report recently issued by Milestone Advisors, a financial advisor in Washington, D.C.”
25.
Comment
from Sniglet
Time August 8, 2008 at 5:03 pm
Rhonda wrote: “I’ve found that most lenders have pulled back the Alt-A type products all ready”
Are you implying that you don’t think this week’s decision by Fannie Mae’s to stop Alt-A lending will have any appreciable impact then (i.e. since Alt-A lending has already ceased)?
26.
Comment
from Sniglet
Time August 8, 2008 at 5:07 pm
Rhonda,
One other question for you: is all Alt-A lending of a stated income, NIV, or “no-doc” variety? Is there no such thing as an income verified, fully documented, Alt-A loan (e.g. someone who’s income is fully documented, but has a credit score that doesn’t quite meet Prime categories)?
27.
Comment
from Rhonda Porter
Time August 8, 2008 at 6:30 pm
Sniglet, I’m just saying what I’ve noticed from my end of the mortgage business. There may be lenders that I don’t work with who are still doing Alt-A. The last one that I recall was Wachovia and…well…they’re not doing that anymore!
Alt-A was just Alternative A paper. Borrowers typically had to have better credit and were probably lacking in income or assets (which is why the they were the stated, no-income verified and no-ratio loans).
1. Comment from seattle mls
Time August 5, 2008 at 12:10 pm
The best thing for real estate would be for the Fed to raise rates. Watch the 10 year come down as inflation expectations are reigned in. Then watch the 30 yr fixed come down a point.