You may remember from our recent conversations on the phone or in presentations I’ve given recently where I cautioned playing the “waiting game” on real estate. The point that I made was that there is a chance that planned economic stimulus will heat the economy some months from now, cause inflation and thus, cause mortgage rates to rise.
The diagram below illustrates this point.
With so much “bad news” circulating, you may have noticed that Kim and I have tried to find opportunity for our clients instead of letting it beat us all up. Fundamentally, we’re trying to turn “lemons into lemonade” as often as possible.With that said, we have the potential for more “good news”!
The D Word
Just today, the Fed admitted released the notes for their October meeting where it was made apparent that, while they had worried about interests rates being too low and causing inflation, their most current and pressing concern is deflation or the falling of prices. This is troublesome to the economy because it disincentives investment.
The upside for us?? Capital (money) may run from the stock market and into bonds to insulate itself from the falling values. This is great news (potentially) for all of us since increased demand in mortgage bonds will cause a lowering of rates. What’s more, is this could make houses more affordable for buyers in the short term. Beyond that, the inflation that may follow will cause home prices to climb and will exert upward pressure on mortgage rates at the same time…..bottom line….now might be an excellent time to get into the market!
If we see an improvement, it might be brief. We’ll be keeping an eye on the market for our borrowers who get accepted offers in the coming weeks and locking them strategically. We always strive to make sure they are able to take advantage of a momentary dips in the market!
Lastly – be careful of anyone who tries to tell you that mortgage rates are tied to things like the 10 year treasury bond. This is a common and erroneous rumor. Our analysis of treasury bonds today indicates a huge (+285 bps) spike in demand and mortgage rates haven’t budged! If capital starts moving towards mortgage back securities, we will see an improvement (lowering) in mortgage rates.
I hope that you find this information useful.
Be sure to grow your business in 2009 with a professional lender as your partner! We look forward to working with you.
Rob and Kim Carlson
Please note that this information is offered as our opinion only. The reader is encouraged to seek professional guidance when making any investment decision. Do nothing with this information is you are not prepared to accept full and complete responsibility for their use.
