dcsimg
Home >> News >> LoanBlog >> Whether or Not they Help the Economy, Lower Rates Are an Opportunity for Individuals

Whether or Not they Help the Economy, Lower Rates Are an Opportunity for Individuals

This week’s news was dominated by the surprise move of the Federal Reserve to dramatically lower interest rates, but there were other news items of interest to the mortgage markets as well:

As much as the above were widely described as symptoms of economic weakness, a more forward-looking view would describe them as stepping stones toward recovery, for the economy in general and the housing market in particular.

Surprise, Surprise!

Federal Reserve Chairmen do not generally come across as party people, but current Chairman Ben Bernanke attempted to throw his version of a surprise party by announcing a 3/4 of a percent rate cut on January 22nd. The move was surprising both for the size of the cut, and for the timing, coming about a week ahead of the Fed’s next schedule meeting. The Fed was widely expected to cut rates at that meeting, but the consensus expectation was for only a half-point cut.

Given that any rate cut can take months to have an impact on the economy, speeding up this announcement by a week was clearly not so much an act of monetary policy as a PR move designed to shore up skittish financial markets around the world. In this respect, the move was only partially successful.    

Mortgage Rates Do Their Own Thing

Even so, for anyone interested in acquiring a new mortgage or refinancing one, even this financial market weakness was good news. Shaky stock markets lead to a “flight to quality” — investors tend to pile into U.S. Treasury bonds, which drives yields down. Since mortgage rates more closely resemble bond yields than they do the Fed’s discount rate, this indicates more good news for already-falling mortgage rates.

Along with news of government and private efforts to assist troubled borrowers, the fall in interest rates added to a particularly good week for current mortgage holders. No financial crisis has a single, sweeping solution, but rather there are multiple steps necessary to address one portion of the problem at a time. Each of these developments represents one of those steps. 

The Right Tool to Fix Mortgages

Even with all this going on, the most tangible piece of good news for mortgage holders is that by mid-January, mortgage rates had fallen to 5.69%, a level not seen since June of 2005. This creates an immediate refinancing opportunity for thousands of mortgage borrowers. Lower mortgage rates are also a critical tool for those private and government efforts to assist troubled borrowers. With lower rates available, it is easier for lenders to restructure terms for borrowers, and should be easier for the government to prevail upon lenders to freeze rates in certain situations.

It will take months to assess what restorative impact the Federal Reserve’s recent rate actions will have. However, for current mortgage holders, and for anyone in a position to refinance a mortgage, the positive impact of recent market developments is here today. Keeping regular tabs on mortgage data is more important than ever in this fast-changing environment.

Tags: , , , ,

2 Responses to “Whether or Not they Help the Economy, Lower Rates Are an Opportunity for Individuals”

  1. Lowell Says:

    This is a great summary of this week’s mortgage and housing news. I find this blog to be a convenient way to stay in the loop. Thanks for posting. I haven’t seen anything else that makes keeping up-to-date on the home loan industry as easy and convenient as this.

  2. richard Says:

    Thanks, Lowell, and stay tuned, because the wheel is still very much in spin. News comes fast and furious at financial turning points, and it is often conflicting. For example, even as falling interest rates are getting so much attention, I can’t take my eyes off the fact that Treasury bond rates have fallen below the rate of inflation. Unless inflation eases, that seems unsustainable…

Leave a Reply