Yesterday the FOMC (Federal Open Market Committee) or the FEDs as we like to call them had their first non-negative meeting announcement in years!
It wasn’t all sunshine and roses, but for many experts their comments are heralding and end to the longest economic depression since the Great Depression. The terminology used in their statment was, “economic activity is leveling out”, “financial markets have further stabilized in recent weeks”, “Hosehold spending shows signs of stabilization”. In essence what they are saying is that our economic freefall has stopped. They believe that we are leveling out and have finally hit a bottom.
The Feds estimated a period of sluggishness followed later in the year by slow growth!
Only earlier this year the President, Congress, and the Senate were all telling us that the fate of the entire global economy was on the precipice and could tip over the ledge at any time. Now in August of 2009 they are in effect declaring that the recession is on the back nine of its life cycle and the worst is over. This administration and the Fed working together have managed to pull us back from the brink and save the American way of life. Sure billions of dollars were wasted and corporate executives basically swindled the taxpayer’s children into debt, but such is the American way of life, for better or for worse.
As the President grapples with finishing up a war over seas, ratcheting up his efforts in a second war over seas, and tackling the biggest most far reaching domestic issue (healthcare) at home, the rest of us must deal with the daily grind of still rising foreclosures and job loss.
Another bonus that came out of the Fed meeting yesterday is the decision to keep the Fed Funding Rate (the rate at which banks lend each other money) at 0% for the foreseeable future. They do not feel inflation is a risk in the near term.
This and the fact that the Federal Government is committed to buying Mortgage Backed Securities should continue to keep mortgage rates fairly low through the rest of the year.
Today we had a nice little interest rate rally that brought a 30 year fixed slightly below 4.75%. The Fed is doing quite a bit to try to help keep the housing market afloat. Just to name a few are:
- Presidential Loan Modification Plan to help keep borrowers out of foreclosure
- Presidential Refinance plan to help good borrowers lower their interest rate and monthly payment despite possibly being upside down on their homes. (110% loan to value loans and no mortgage insurance will do the trick!)
- $8,000 tax credit (not a loan… A FREE CHECK from Uncle Sam just for buying a home). The Market is also trying to find a way to make this work as downpayment funds for those lacking the 3.5% that FHA requires as a down payment.
- Buying MBS to keep rates low
- Flushing banks with free or EXTREMELY low cost money so they can keep making loans (even if they act like they fear doing so)
No doubt President Obama and his staff are pulling out all the stops in their efforts make lemonade out of the economic hand they were dealt.
We look forward to reporting next week on where rates are after receiving some more economic data. Recent reports about slowing job loss was good news, but it was followed by reports of rising foreclosure rates.
To all of our fellow survivors in the mortgage and real estate industry we salute you.
To all those able to benefit from low interest rates and rock bottom housing values we congratulate you!