Fed holds key interest rate at 5.25%
Can someone report on rates today please, by commenting to this post? I hear they are the lowest since 1/1/06, is that true?
Can some of you email me for consideration as an RCG contributor? We REALLY, REALLY NEED a couple of mortgage background RCG Contributors. Email me off site at Ardell@SoundRealty.biz
Thanks…running to show a couple of properties…will check when I return.
No Ardell that is incorrect. The fed funds rate that Ben Bernanke and Co control to guard against inflation and contro pricing stability was LEFT ALONE at its highest level since 1/1/2006 at 5.25%.
1 of the board members still voted for a 1/4 pt rise to combat inflation pressures and the rest voted for no change.
The bond market is clearly betting on a slowdown in the near future with an inverted yield curve making short term rates higher than medium term rates; obviously a backwards scenario from the norm. If economy does slow, the fed will cut rates to stimulate the economy therefore bringing rates lower in years to come. Hence the inverted yield curve I described above.
The fed funds futures, which basically bet on the probability of future fed moves, seems to pricing in NO CHANGE in rates until at least mid next year, and possibly a cut or 2 by end of 2007, in conjunction with the bond market predicted slowdown to come.
However, stocks (leading indicator of the economy) are still in a upward trend causing a debate amongst economists. Are stocks right? Or Bonds? Stocks are betting on soft landing which would keep rates steady. But if stocks get real hot, or oil rises, or inflation numbers start heading higher, expect HIGHER RATES next year.
Noah
Um, Noah, maybe Ardell was asking about Mortgage rates, not the Fed rate? Indeed, from an article date Dec 12, http://rismedia.com/index.php/article/articleview/17018/1/1/
“Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.11%, down from 6.14% last week. The only time rates have been lower this year was the week of Jan. 19, when the 30-year mortgage dipped to 6.10%.”
I listened into CNBC for a couple of hours today around the time of the Fed made their announcement. I normally listen to the CNBC early in the morning before going into my office, but really wanted to get a good fix on what’s going to happen in 2007. I’m glad I listened in; there were a lot of Economists, Homebuilder and Journalist weighing in on today’s decision by the fed.
Like UrbanDigs mentioned above, the fed decided to leave the rates alone today at 5.25%. The fed left the rate alone since June 2006 and prior to that raised the rate 17 times in a row. There are 11 board members that vote on rates and the vote came out 10-1. CNBC asked a former fed governor why the one vote for a raise and he said that particular governor has voted yes for the past couple of times and probably wanted to be consistent.
The only change in the language that the fed used today was in reference to our industry. The fed had said that “because of the substantial cooling in the housing market, they will leave rates alone at this time”. The general consensus was that not only will the fed leave rates alone, they will probably lower rates .25 % by May and probably another .25% by the end of 2007.
With that said…it really all depends on the economic growth rate and what happens with inflation. But for now the biggest worry with the Fed seems to be the housing market and what’s going on with it. They realize that the housing sector is a big player in the overall market, so they want to watch what they do with rates. Most analysis agreed today that inflation seems to be in check and in fact we might have a slight slowing of GDP in 2007. The same analysts are saying the housing sector will slowly recover by the end of 2007.
My guess is that the fed rate will be at 4.75% by this time next year. And we should be in a normal market by 2008. We need to work the inventory of new homes on the market down to a more comfortable rate before we really start to see a recovery. Speaking of new homes, CNBC interviewed Robert Toll, CEO of Toll Brothers, one of the nation’s largest homebuilders. Toll says, “Were dancing on the bottom”. He also mentioned that in the market his company build in traffic has been up 20-30 percent and deposits on homes to purchase have slowly started to go up.
I’m going to add a long post tonight on my blog at NorthwestLiving.net, if anyone is interested in more. I think the main thing I’ve tried to do as a Realtor during the past 18 months, is not listen to the Negative Chatter. After 14 years in this business and another 12 years prior to that on the building side…one needs to be careful about listening to the negative talk or Negative Chatter. The bottom line is, people are always quicker to spread bad news, before good news. The problem with listening to the negative people is that if you’re not paying attention on what’s really going on in the market, you can miss a buying opportunity!
I think right now is a great buying opportunity with interest rates at 6.11 percent, higher than normal inventories, winter time markets generally are better buying opportunities and of course were in a buyers market.
Off to my Bellingham Blog, bye guys…
Jerry, you lost me there. Don’t you have to pay attention to “negative chatter” if it is valid, to represent your client’s best interest? I don’t think that is what you meant. Scanned it too fast, I think. If it IS negative, don’t you have to advise your clients accordingly? Sounds like you are saying you “ignore” the facts and just pretend everything is rosey…I’m sure that’s not what you meant.
Dave, YES!!!!
Noah, love the comment. You were correct in the context given, though Dave was correct in interpreting “Ardellspeak” 🙂
I was in the investment business the last time rates were inverted. Have to go back there in my brain and remember. Mostly I remember those who were too greedy and went short, instead of buying long bonds (at that time, when short was 20% and long bonds were 14% ) defintely made the wrong call.
The housing market skyrocketed, when we came out of that inverted rate scenario, as I recall. Maybe because builders are subject to the short rate? Not sure. Have to think about that.
What’s the spread on the short vs. 20 year…minimal? Inverted all by itself may not be as significant as short being MUCH higher than long, as it was back then.
Have to ponder that some more.
Noah,
Another remembrance, those who put it all too long too soon made the wrong call as well 🙂
Ardell,
Absolutely, you have to look at the whole picture and properly evaluate both sides of a situation…but that’s not what I’m referring to when I say Negative Chatter. I’m talking about the negative nay Sayers that only want to look at the bad side of every conversation. In fact today there’s entire blogs that are directed towards the negative side of things. I think it’s more to draw attention upon their blogs by being so controversial. I don’t sign on to their negative stuff…but do listen to the positive and negative of professionals and non professionals a like…that I respect. I hope that clarifies things a little more. Thanks for asking.
Nite all….
oops..sorry about that..Got caught up in the title of the post. Yes, I believe mortgage rates trended to the lowest levels of the year in most part due to the falling bond yields which are a guide, so to speak, for mortgage rates.
I need a vacation.
Ardell,
Mortgage rates did hit a year
highLOW yesterday, since the second week of January.However, that may be a potentially reversing course for now. Today’s Retail Sales report came in much greater than expected sending mortgage backed securities down nearly 28 bps, which on a lender rate sheet translates to about a 0.125% higher in rate. Essentially all of yesterday’s gains were erased and then some. Retail sales came in at a whopping 1.1% excluding auto sales compared to the expected 0.3% gain. October numbers were also revised up to 0.3% from 0.1% decline.
So what does this mean? It suggests that the economy is strong on the consumer level, however these consumers are paying for these purchase on credit cards. So in January and February when these bills come due and consumers begin to feel the pinch, we’ll most likely see a significant slow down in retail sales, which could boost mortgage bonds and lower interest rates. At the end of this week we still have a significant inflationary measure and Fed favorite coming in the form of the Consumer Price Index and more importantly the Core CPI, which strips out volatile food and energy. As you may know CPI is a measure of the average price level paid by urban consumers (80% of population) for a fixed basket of goods and services. So essentially it is a measure of price inflation on the consumer level, that in the end affects how and where we spend our hard earned money.
In the context of the last 12 months, mortgage rates are still at their lowest levels of the year and it’s a great opportunity for those in need of mortgage financing.
Chik
Ardell, thanks for the heads up on my commentary above, “mortgage rates did hit a year
highyesterday”.I was thinking in the context of Mortgage Bond pricing reaching a high which transltes into lower interest rates.
Restated: mortgage rates did hit a one year LOW yesterday.
Chik
Chik, I’m making the corrections on your two comments for you, per your email to me.
I’ll do the edit, as it is very misleading…the opposite of “what IS”.