Is it a good time to buy a home?
There are thousands of home buyers sitting on the side lines trying to time the very bottom of the housing market, wondering when the time to buy may be. The time to buy may have already passed many of these individuals by. The opportunity to purchase a home at the very rock bottom of prices may be overshadowed by the offset of higher mortgage interest rates. The month of June has seen mortgage rates increase by over 1/2 of a percent on most loan programs. This rapid increase is equivalent to about 10k in price negotiation on a 200k mortgage when assesing a home purchase. The half of a point increase raises a borrowers payments by approximately $60 per month for the entire loan term.
Home buyers who are contemplating purchasing and still need motivation should look towards the stock market and comments regarding inflation and the fed funds rate for further motivation to move forward. Many economists now believe that the Fed will be forced to raise the fed funds rate in the fall of 2008 to help stem the rapid rise of inflation, primarily caused by the rapid increase of oi prices. Mortgage rates are not likely to decrease should inflation keep rising as sharply as it has in the past two months. For every 1/2 percent that mortgage rates move up on a 200k loan, it affects the borrowers net buying power by about 10k. Meaning, they are now paying the same payment on 190k as they would have had at 200k due to the higher interest rate.
Mortgage rates zoom up
Mortgage rates have moved up fast in the month of June. The ten year bond finished at 4.1% in trading on Tuesday, June 10th the highest level it has been in 2008. Fixed rate mortgage loans are now well into the six percent range with the national average hovering around 6.5%.
The market has been under severe pressure from the rapid increase with oil prices. There is a growing concern that the level of inflation in the market will continue to grow, despite the slow down with the overall economy as energy prices continue to climb. The economy has been quite resiliant in the 2nd quarter. Ben Bernanke recently issued statements stating that he believed inflation would slow down as the economy slowed down, but many investors are now concerned that the Fed would look to increase the fed funds rate as early as the fall of 2008. The housing market has yet to break out of its down turn and higher mortgage rates will place a further strain on this industry.
Consumers who may be in the market to buy a home or are considering a refinance should act soon to lock into fixed rate mortgages as there is a good chance interest rates will continue to move up through the course of the summer.
How could Yahoo stock effect mortgage rates
The stock market could be under pressure from the fallout of the Yahoo & Microsoft merger. So what does this have to do with mortgage rates? The connection is strictly tied with investment dollars and decisions. When the stock market is doing well and investors are purchasing equities you tend to see mortgage rates increase as investors pull their money out of the safer bond market and invest in equities such as stocks.
The flipside of this analogy is that when investors are concerned about the direction of their equity investments or perceive higher risk in the stock market they tend to invest into the bond market. When this happens you tend to see mortgage rates decrease. Their is not always a direct correlation between the ten year bond and mortgage rates but this is a common index that investors follow when they are trying to follow the direction of which mortgage rates are heading.
Home owners or potential home owners who are shopping for a mortgage and must determine whether or not to lock or float their interest rate can use the stock market to help gauge what direction interest rates are heading but should be cautious that no one can predict where rates are moving and economic and investor news comes out on a daily basis that can change the markets direction.
Fed cuts key rate
The Federal Reserve as expected cut the fed funds rate by .25% lowering the key rate down to 2%. This translates over to a prime rate of 5%. The move was expected by most economists who recognize that the fed is facing an increasingly difficult task of balancing rates and economic growth.
The fed was non committal on whether they would continue lowering the fed funds rate this year. Despite a struggling real estate market the fed is now faced with record oil prices and must juggle the impact this could have with inflation. Additionaly, the fed is under pressure as the U.S. dollar continues to decline. The economy has been quite resiliant despite the struggles in the housing industry. Mortgage rates typically do not move when the fed cuts the fed funds rate, however yesterday after the announcement their was a slight decline in the bond market which would be good news for mortgage rates and those considering a refinance.
Unemployment rate is now above 5%
The nations unemployment rate shot above 5% for the first time since 2003.
For the second month in a row, the job market posted a negative figure, this month a total of 80,000 jobs were lost. The job market is simply another indication that the U.S. economy is in a period of recession. The interesting part of yesterday’s news is that the stock market has already priced in a negative figure and did not have a significant sell off, even with the disappointing news. Many economists are now predicting that the Fed will be forced to cut the Fed funds rate by and additional half percent later in the month. The yield on the ten year bond dropped below 3.5% which is good for long term mortgage rates. The market mentality has shifted from fears of a recession, to acknowledging that the economy is in a recession and simply trying to determine how long it will last. This is good news for individuals looking to refinance their mortgage as you should expect fixed mortgage rates to continue to hover under six percent.