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The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to pick up”, that the jobs markets is getting better, and that housing market has shown “some signs of improvement” lately.

It’s the fourth straight statement in which the Fed speaks optimistically about the U.S. economy – a signal that the worst of the recession is likely behind us. Which doesn’t mean that things are better, just that they are getting better.

Just as there was speculation about the end of the last “boom” before the impact of that end was felt, there is always a lot of conversation about recovery before its impact is completely felt. People who are struggling now may be feeling some relief, but they may continue to struggle for a while longer – though they can do so feeling that things are getting better, and should continue to do so.

The economy isn’t without threats, however, and the Fed identified several, including:

1. Tight credit conditions for consumers
2. Businesses are reluctant to hire new workers
3. Lower overall housing wealth

The impact of each is obvious. Without more liquid credit, larger purchases like homes, cars, and business equipment may be stalled (or at least slowed) even though the demand or need for those purchases is growing. Until more people are employed, many families will be more conservative in their spending, delaying some of the benefits of the recovery. And finally, with less equity in their homes, people have a harder time releasing that equity for education, purchases, or opening new businesses. At least in our market area, since our price adjustments have been very moderate in comparison to the national averages, people have not lost as much housing wealth as in other parts of the country.

The message’s overall tone remained positive, however and inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.  That plan — due to expire at the end of March 2010 –  should be noted by today’s homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is negative.  Mortgage rates aincreased after the annoucnement.

The FOMC’s next scheduled meeting is January 26-27, 2010.

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is ”leveling off” and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn’s end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

1. Ongoing job losses
2. Reduced “housing wealth”
3. Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

Market reaction to the Fed’s press release is muted.  With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic.  Mortgage rates are unchanged.

The Fed’s statement is another of a growing list of indicators that while we may have hit the bottom of our economic issues, they are not yet over. However, from my vantage point as a layman, it seems to me that real estate might once again see signs of the recovery before the entire economy does. Just as we were the first sector of the economy impacted by the economic woes, we might just be one of the first sectors to feel the benefits of the recovery. Sort of a “first in, first out” scenario. Of course, I temper that by

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reminding the reader that I am no economic expert, and my guesses are as invalid as any of yours.

The FOMC’s next scheduled meeting is September 22-23, 2009.

Sometimes, saving money on your mortgage is as simple as picking a better closing date.

It’s all about Rate Lock Commitments.

A Rate Lock Commitment is a bank’s promise to honor a specific mortgage rate for a specific period of time.  They are a lender’s prediction of what mortgage markets will look like at some point in the future.

The future is murky, of course, so it follows that the longer the rate lock, the higher the bank’s corresponding interest rate.

Banks have to compensate for “time risk”.

Rate locks typically come in 15-day increments with the 30-day lock serving as the basis for all other pricing:

• 15-day rate lock : 1/8 percent lower than the 30-day rate lock
• 30-day rate lock : The basis for all other pricing
• 45-day rate lock : 1/8 percent higher than the 30-day rate lock
• 60-day rate lock : 1/4 percent higher than the 30-day rate lock

These aren’t exact figures, of course.  Spreads between rates can (and do) vary from lender-to-lender.  On average, though, they’re fairly close.

This is why choosing a closing date is so important to your mortgage rate. A 45-day closing may reduce your rate 0.125% versus a 46-day one.

Assuming a $250,000 home loan near today’s rates, that’s an annual difference of $236.

So, when negotiating a contract on a home, keep in mind how rate locks work to make sure you get the best rate possible. The shorter the length of your rate lock commitment, the more money you might save long-term.

A second money saving trick is adjusting your closing date towards the end of the month. At settlement you will pay interest from the date of settlement to the end of the month you settle in. For example, if you settle on the 5th of the month, you will pay 25 days interest. If you were to settle on the 25th of the month, you would only pay 5 days interest, reducing the cash needed at settlement by 20 days (or 2/3rds of your monthly interest payment). While this doesn’t actually save money, it does help your cash flow at the time of settlement (when money always seems a little tight).

You might think it even smarter to settle on the last day of the month to minimize the interest payment, but with so many people trying to settle then, potential problems seem to pop up in timing which might end up with your settling on the 1st day of the following month if anything gets delayed, costing you even more cash than you wished – so keep a little cushion in there for surprises, and you should maximize your cash flow, have a few days to move before your next rental payment, and breath a little easier.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged last week on June 24th within its target range of 0.000-0.250 percent.

The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is not slowing with the same speed versus just two months ago and that financial markets, in general, are improving.

These are two signs that the country may be emerging from recession, if it hasn’t already. ANd that means good news for the real estate market which usually leads the way into and out of economic times like these.

The news isn’t all good, however. The Fed made a point to highlight the potential hazards the nations faces on its path to economic recovery:

• The prices of energy and commodities have been rising


• Job losses are still mounting nationally


• Businesses are reducing capital expenditures

Market reaction to the Fed’s press release has been muted.

With no new stimulus and no new “tools” to spur the economy unveiled, Wall Street is business as usual. Mortgage rates are unchanged post-FOMC today.

So it would seem when all is said and done, that even if we are coming out of the toughest times, there will still be plaenty of challenges to meet us on the way out.

The FOMC’s next scheduled meeting is August 11-12, 2009.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.  The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months.  Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

• The growing ranks of unemployed workers
• The reduction of housing wealth nationally
• Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth.  This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

For home buyers and refinancing homeowners, today’s press release was not favorable.

After the Fed’s announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off.  Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Source
Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009
http://online.wsj.com/public/resources/documents/info-fedparse0904.html

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged last week.  It remained within a target range of 0.000-0.250 percent.

In its press release, the FOMC reiterated most of the key points from its December 2008 statement, including:

• The U.S. employment outlook continues to deteriorate
• Consumers and businesses continue to cut spending
• The housing sector is still showing weakness

In addition, the FOMC addressed the “extremely tight” credit conditions for U.S. households and business, even as it said some financial markets are showing signs of improvement. 

To the Fed, the latter is a precursor for the former.  For Americans needing new mortgages or other forms of credit, it may mean that getting approved gets easier sometime late this year.

Most importantly, the Fed’s press release again mentioned the policy-setting group’s intention to “employ all available tools” to promote economic growth.  This includes the open-market purchasing of mortgage-backed debt that has helped fuel the current Refi Boom. The Fed indicated a willingness to extend the program beyond the initial $500 billion, if necessary.

For each of the Fed’s interventions, though, there is a trade-off. 

Buying securities costs money and the Fed — literally — comes up with the cash by printing it.  The extra supplies devalue the U.S. dollar which, if left unchecked, can cause the Fed’s plan to backfire in the form of runaway money supply-led inflation.  The Fed is aware of this risk and is pledged to monitoring it closely.

Overall, mortgage rates worsened today after the Fed’s statement.

Source
Parsing the Fed Statement
The Wall Street Journal Online
January 28, 2009
https://online.wsj.com/internal/mdc/info-fedparse0928.html

The Federal Open Market Committee voted to cut the Fed Funds Rate by at least three-quarters percent on Decmber 16, 2008.  The benchmark rate now rests in a range of 0.000-0.250 percent.

In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:

1. The U.S. job market is deteriorating
2. Consumer spending levels are falling
3. Business investment is contracting nationwide

The Fed intends its rate cut to provide stimulate to each of these areas.

In addition, the voting members of the FOMC singled out inflation as a diminishing threat to the economy.  This is an important admission because it’s well-known that cuts to the Fed Funds Rate can spark inflation.  Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today’s historic cut.

In its announcement to markets, the Fed gave The People what they wanted — a reassurance that the policy-making group would “employ all available tools” to help turnaround the economy.  Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.

How the markets react over the long term is a different issue as the Fed loses a powerful tool when the rates get this low. Their ability to provide additional stimulus n this manner.

Source
Parsing the Fed Statement
The Wall Street Journal Online
December 16, 2008
https://online.wsj.com/internal/mdc/info-fedparse0812.html

According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.

It’s the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans — both employed and unemployed.

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed‘s two-day meeting starting December 15.  Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead ”floating” interest rates lower on home equity credit lines and other revolving debt.

And this talk from the Fed also comes on the heels of its $500 billion pledge to buy mortgage-backed bonds.  That demand-shifting move was announced last week and drove mortgage rates lower.  It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for “urgent” action.  It’s a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today’s job data is a non-event of sorts for active home buyers.  Mortgage markets expected a poor reading and they got it.  Normally, data like this would cause mortgage rates to spike but this is not a normal market.

Now, with markets expecting additional stimulus, mortgage rates are edging lower today with hopes of an economic rebound.

Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today

The Federal Open Market Committee adjourns from its scheduled 2-day meeting today at 2:15 P.M. ET and the markets are eagerly awaiting the central bank’s press release.

In it, Fed Chairman Ben Bernanke is expected to address the U.S. economy, the future of credit, and the new Fed Funds Rate.

It’s this last point to which mortgage rate shoppers should pay attention — when the Fed Funds Rate falls, mortgage rates tend to rise.

The inverse relationship between mortgage rates and the Fed Funds Rate is based on the idea that cuts to the Fed Funds Rate are designed to add gas to U.S. economic engine.

In theory, over time, Fed Funds Rate cuts work to improve Corporate America’s balance sheets, thereby rewarding shareholders.  Therefore, when the Fed Funds Rate falls, or is expected to fall, investors often rush to buy stocks before their prices get bid up.  Part of that process, of course, includes selling the “safe” parts of their portfolio which are usually loaded with mortgage-backed bonds.

If you were looking for a reason why mortgage rates tanked Tuesday while the Dow Jones added 11%, now you have it.

The Fed Funds Rate stands at 1.500% and markets are split about how far the FOMC will cut it this afternoon:

• A “pause” is expected by 2 percent of traders
• A 0.250% rate cut is expected by 5 percent of traders
• A 0.500% rate cut is expected by 45 percent of traders
• A 0.750% rate cut is expected by 40 percent of traders
• A 1.000% rate cut is expected by 8 percent of traders

Without a consensus opinion among traders, no matter what the Fed does today, a lot of investors will be forced to rebalance their portfolios to account for their “bad bets”.  This will add to market volatility for sure.

Mortgage rates are calm this morning.  The calm likely won’t last.  If you are floating your mortgage rate and want to avoid additional risk, consider locking your rate prior to the FOMC press release. 

The Federal Reserve made an “emergency rate cut” last week, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won’t know if the cut truly “worked” until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates were rising at the same time.

The Fed’s actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds.   Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning. 

As always, mortgage markets and mortgage rates remain on edge.  Therefore, rates are subject to change.  And quickly.  If you see a rate and payment you like, be ready to commit to it because it likely won’t last long.

(Image courtesy: USA Today)