The stock market continues to move lower as the year comes to an end
The stock market is ending one of the worst years of record this week. The market which has lost over 40% of its value during 2008 continues to head lower. The economy and record loss of wealth in the world will forever be a headline attached to 2008. Investors have lost trillions of dollars in net wealth over the past twelve months and there have been very few industries that have escaped from the dramatic decline with the economy. The number of billion dollar corporations to go under reads like a list of top brands as no one has been immune this year to the economic challenges.
The housing market was a major focus of the economy for the first part of 2008 and then energy prices gained attention as oil prices rose to record levels. The market fell apart in September with the fall of Lehman Bros as the credit markets completely froze. Over the past 90 days stock prices have dropped another 20% and consumer confidence has moved to 2008 lows. The retail industry struggled with a dismal holiday period and almost every industry is looking forward to seeing 2008 in the rear view mirror.
Refinance rates could fall further following fed rate cuts
The fed agressively cut the fed funds rate by 3/4 of a point today, dropping the rate to .25%, the lowest level of all time. The historic move was a bold move to try and spur a rebound in the economy. The stock market reacted positively and rallied over 350 pts on the news. The news should be welcome to home owners on several fronts. Home owners with home equity loans that are tied into prime will see an immediate reduction to to their payments following the move. Mortgage rates could also benefit from this as well as the Fed is believed to be ramping up other programs to help bring down rates further. Consumers who are looking to refinance their mortgage should be aware that the fed move does not directly relate to how mortgage lenders price their mortgage loans.
The fed also indicated they are looking to make some agressive moves to help shore up the housing market. The move to lower the fed funds rate essentially eliminates the Fed’s ability to lower rates in the future. The fed has been forced to make bold moves primarily as they are focussed on trying to improve liquidity to the credit markets. Consumer confidence may benefit from this move as the perception is that the Fed will take whatever steps are necessary to try and fix the economy.
Consumers benefit from low gas prices and great refinance rates
The american consumer who is the backbone to the economy has taken a lot of blows this year as they struggle to find a bottom to the sagging economy. The recent report on the job market showed a net loss of over 500,000 jobs for the month of November, a staggering number that could continue to grow. There are a few silver linings in today’s economic climate. The dramatic fall out of the stock market has helped to bring down mortgage interest rates to near historic lows. Consumers are benefiting with refinance rates that have not been seen since January of this year. The lower house payments could help to pump some additional income back into the economy. The rapid drop in oil prices is also going to save the average consumer in excess of $50 per month, at a time when this is desperately needed.
The market is very tied into the bailout loan proposals for the auto industry and the anticipation of the President elect Obama’s capital expenditure program. The market could continue to benefit with low rate mortgage loans as the government works in overdrive to try and jumpstart the housing market.
Fed moves spur mortgage refinance applications to soar
Mortgage rates have dropped sharply over the past two weeks and home owners are racing to refinance their home mortgages. According to a report from the mortgage bankers association, refinance applications surged over 20% in volume share over the past week as consumers looked to lock in historically low interest rates.
The rapid drop with interest rates can be directly tied into a recent decision by the Federal Reserve to purchase over 700 billion of mortgage backed loan securities from companies such as Fannie Mae and Freddie Mac. This recent move was directly aimed at attempting to unlock the credit markets and bring the spread between the ten year bond and mortgage rates in line. The ten year bond is hovering below 3% as record numbers of investors have been fleeing into bonds looking for more security for their financial investments.
The moves by the fed are a direct attempt to bring down rates on home loans for home owners exploring refinancing options as well as those who are hoping to purchase a new home. Lowering interest rates on mortgages one full percent, will help new buyers afford up to $10,000 more home value for the same house payment as projected with the higher rate. The lower refinance rates may not last forever, as the stock market continues to be extremely volatile.