Rates make a big move!!!

Mortgage interest rates were going to drop. We knew it was going to happen, but not this fast and not this soon. With the Fed throwing money around like Pac-man at a strip club, some of it would eventually have to make its way to mortgage-backed securities. This morning it did!

The Fed announced this morning it will purchase direct obligations of housing-related GSEs from Fannie, Freddie, Ginnie and Federal Home Loan Banks. In addition they will be purchasing Mortgage Backed Securities from these institutions. What does all that mean? Basically, if the Fed is buying it, so should everyone else. With that assurance from the Fed, 30 year fixed rates dropped to 5.25% this morning.

Just as Citibank stock soared on news of a Fed infusion of cash yesterday, mortgage rates drop based on the same action today. I do want to make sure I don't lose anyone here:

What causes a stock price to go up? People buying shares.

What causes bond prices to go up? People buying bonds. That being said, bonds have something else to factor in...the yeild they pay. Bond prices inversely relate to the yield (interest rate) that is paid on the price of the bond. Bond price goes up, interest rates go down.

Where do we go from here?

1.) If you are currently in a home with an interest rate over 6%, you need to have your situation closely evaluated to see if refinancing is right for you. A general rule is: if you are going to be in your home for more than 3 years, it will probably make sense.

2.) If rates can maintain these levels for the next 6-8 months, it should produce a very strong real estate market for 2009. Rates being low was a major contributing factor to the housing boom from 2002-2005.

3.) Know your facts if you are thinking about buying. Target a couple specific areas and take a look at what has been going on the last couple years. Sellers are still very nervous and scared. This means you do not have to find a foreclosure or short sale to get a good deal. Plenty of properties are being sold under the market in a traditional fashion. Find an agent that can go through the numbers with you and advise you on your situation.

"Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffet

4.) The Fed is so aggressive with stimulating the economy right now, that these are probably the best interest rates we are going to see for a long time. Once the economy turns around, the first indicator is inflation. When inflation starts to rise, so do mortgage rates.


All of this tells us that now is the time to buy. If you have been thinking about selling your house to move up to the next one, now might be the time. But I can't sell my house right now. Yes you can if it is priced correctly. Houses are flying off the market in certain areas as long as they are priced right. It is ok to take a little less than you were hoping for on your current property to take advantage of the opportunity out there right now!