Tue Dec 16th, the Federal Reserve threw in everything, and yes, the kitchen sink. The Federal Funds Rate dropped to 0% and the Fed committed to keeping rates low for a considerable amount of time. The Prime Rate now hovers at 3.25%. These rates will continue throughout 2009.
This is good news for real estate buyers and sellers. Buyers can lock in rates below 5% today. Most national websites are publishing rates for 30 year fixed mortgages at around 5.3%. The loan officers I talk to tell me rates are below 5% at “par”. Par means that you do not have to pay points to get your rate at 4.75% or 4.875%. If you have good credit and put 20% down you should be able to get a loan on an owner occupied property below 5%. Tis’ the season for home buying.
The Ten Year Treasury is hoving around 2.2%. That boggles historical reference points- in the bond market- investors are pricing in a long recession.
The Fed has made clear commitments to purchase a variety of fixed income securities on the open market. This will pump money into circulation and drive down yields on all of these fixed income products. When demand increases, prices increase- and in the bond world- yields fall inversely to prices.
The Fed is going to purchase longer maturity Treasuries (if they purchase the 10-Year- this should help drive down mortgage rates further). They are going to purchase Fannie Mae and Freddie Mac debt (Agency Debt). They are going to purchase MBS (Mortgage-backed Securities) as well as Corporate Debt and Consumer Debt! This is truly historical and should drive down yields and drive down mortgage rates.
Look for a blip in activity on the refinance and purchase side coming this Spring.
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