Uncertainty leads to opportunity for buyers

The Fed raised the Fed fund rate this week as expected by most of the market. Mortgage rates remained virtually unchanged on the news, staying at the best pricing we have had since September. The stock market is another story, as the Fed confirmed for stocks that it is no longer accommodating the markets with artificially low rates and bond purchases. The also confirmed the general outlook that there will be a slower pace for growth for 2019. 

Mortgages are not set by the Fed or the Fed rate, but usually mortgage rates do rise as the Fed raises rates. The reason for this is that usually the Fed raises the rate when the economy is improving. Long term bonds (like 30 year mortgages) sell off and rates rise as a result on this same outlook.  Improving economic conditions make money flow out of long term bonds into higher return items (like stocks) because the outlook is increasing economic growth and you can earn more putting your money to work elsewhere. 

 There is currently a divergence between the Fed and what the bond market believes about the economic outlook. Mortgage rates have been improving the past few weeks because the outlook is lower GDP and slowing growth in the short term, this is the same reason stocks are selling off.  So Fed rate is rising while mortgage rates are declining. 

Customers need to know that mortgage rates will rise again- no way to time these things- but it is a simple supply and demand issue.  The government is set to have to issue more debt in 2019 than at any other year.  This means an increase in bonds issued to pay for the growing deficit.  At the same time, the Fed is continuing to reduce its bond holdings.  The increase supply will cause rates to rise to entice buyers for the debt (bonds). The Fed has made it clear that they will no longer accommodate the markets by using artificially low rates and bond purchases to stimulate growth.  Clients have the opportunity right now to get a rate that most likely will not be available in the very near future.

For now enjoy, rates will remain low due to the uncertainties that exist in the geo-political realm.  Best to take advantage of this before the landscape changes again.

Program updates: The government showdown/shutdown is on everyone’s mind.  Essential services will stay in place like Social Security and Defense. All “non-essential workers” furloughed…so do we really need them? Politicians should note this could backfire. Maybe the shutdown will be an eye-opener to what a smaller government looks like. Will we even notice they are gone? Just a thought…

With regards mortgages, FHA and VA loans will be able to close but some services like case number orders (which we need to order an FHA appraisal) or VA verifications of eligibility will be delayed. As well as IRS and Social Security verifications could also delay closings on loans, including conventional loans depending on how long this lasts. As always stay tuned…

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.