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The Fed Says they will do "whatever it takes"

Whatever it takes...

They feel like some famous last words.  Words that mark the near end to super-low rates in mortgages.  Bear with me as I take you through some of the more recent turn of events and what it means to you.

What the Fed is actually doing

All of these actions taken by the Fed are designed to kick-start the economy, or as they put it in their statement on Sunday, "support stability in the financial markets and support the flow of credit to households and businesses to achieve their goal of maximum employment and price stability".  Thanks for the political mouth full.  Allow me to translate.

The Fed needs to thwart a massive recession.  This recession is not at all like the one in 2007-08.  This one isn't caused by greed and there is no sub-prime nor housing crisis.  This recession will be caused by a bug.  Something way more uncontrollable and with a far greater toll.  The positive side to it is that our "return to normal" should be much faster than in 2007-08.  When a cure or a way to treat the virus is found, confidence will return and the bulls in the market will run free.

A Good Economy is not good for rates!

Note that the actions taken by the Fed are to pave the way for a better economy.  In very simplistic terms, a good economy means higher wages, meaning higher prices (i.e. inflation) which is the arch-enemy of bonds and low interest rates.  This is why the Fed doing "whatever it takes" is not good for interest rates in the short term.  It sort-of feels to me like an Avengers movie where everything gets torn down to defeat the recession-beast attacking our world.

What's Next?

The government is sending money to tax payers, bailing out businesses, getting into more debt, with the longer-term effect of the stimulus (in my mind) being unclear.  I've heard that the "peek" of all these financial woes won't be seen until April and then things should improve from there.  April is the hump and we aren't yet over it.

And Mortgage Rates?

Mortgage rates have yet to find their footing.  Even after the "good news" it hasn't resulted in lower mortgage rates.  I've had to have some difficult and seemingly illogical discussions with some very smart clients.  I've said the following this week:

  • No, rates are not going to zero. 
  • No, interest rates are not going down, they've gone up. 
  • No, you shouldn't pull out of your refinance, you were locked at a great time.  I had one client who's loan I just canceled with a rate of 2.625%! (p.s. it was a 15 Year Fixed)
  • No, you should not pull out of your purchase contract, home prices are not going in the tank, but on the contrary they will go higher (link).
  • No, I really would not shop around right now.  By the time you call me back, rates will be different.  I would pull the trigger and lock now if it works for your family.
  • Yes, it's true that many companies have stopped refinances all-together.

My Advice

First, don't sweat this market and don't panic.  Rates are still 1% better than they were last year.  Lock in if it helps you save money or buy the home your really love. 

Secondly, look at using the equity in your home to consolidate debt or take cash out for a rainy day.  Extra cash is a great solution for the unknown. 

www.loanwithrick.com with any questions about purchasing or refinancing.