Moorings Column 10-29-12

Hello and welcome to this week’s edition of Moorings, your source where local and national mortgage and real estate news meet. Interest rates have remained unchanged from last week. This week, a client looking to purchase or refinance a home with a conventional thirty year fixed can expect an interest rate of around 3.625%. An FHA loan can be had for around 3.25%. As I have been saying for some times, these rates are truly some of the best I have ever seen and anyone who hasn’t taken advantage of them will definitely regret it when they eventually go back up.

In major news, after last week’s regularly scheduled meeting of the Federal Open Market Committee (FOMC), the Fed reaffirmed that its latest round of Bond buying (known as Quantitative Easing or QE3) would continue until our economy can stand on its own two feet. This means that the Fed reaffirmed that they will purchase $85 billion of Mortgage Bonds per month through the end of the year, and at least $40 billion per month thereafter until the labor market substantially improves.

The Fed acknowledged that inflation, in the short-run, has picked up due to higher energy prices. Remember that one of the goals of QE3 is to avoid deflation and actually create inflation. Hints of inflation can spook Bond investors–causing both Bonds and home loan rates (which are tied to Mortgage Bonds) to worsen–because inflation can reduce the value of fixed investments like Bonds. Though the Fed noted that longer-term inflation expectations are stable, this is one story to keep a close eye on in the coming weeks and months.

The quandary for the Fed is that all of the money printing through QE1 and QE2 has not boosted spending or demand (in economics they call it aggregate demand and aggregate spending), as evidenced by the anemic Gross Domestic Product (GDP) numbers we have seen of late. The advanced (first of three readings) of GDP for the third quarter of 2012 was reported last week at just 2.0%. But there was some good news last week, as New Home Sales jumped 5.7% in September from August and Durable Orders (orders for products lasting at least three years) rose more than expected.

So what does all of this mean for home loan rates? Renewed worries over the debt crisis in Europe (Spain in particular) will keep investors glued to the safe haven of the Bond markets for some time, benefiting home loan rates as a result. However, a continued rise in inflation is a real possibility–one that could have a negative impact on both Bonds and home loan rates. The upshot is that this is the chance of a lifetime to buy real estate: best prices in seven years, an incredible array of inventory, and the lowest interest rates in history! Well that’s all for now and until next week, Be Blessed and Numbers 6:24-26 be on you.