Posts tagged "The Fed"
Predictions on Mortgage Rates – Will the World Come to an End on March 31?
Carolyn Said of the San Francisco Chronicle wrote a good story yesterday taking a look at a number of the possible scenarios that might play out in terms of interest rates. A couple of thoughts:
- I’m reminded of the saying, “What will you get if you line up 52 economists against the wall and ask them what color the sky is?” Answer – 104 opinions.
- The fact that all of them predict that rates will go up is a pretty good indication that rates are not going to go down any time soon.
My prediction is that we’re going to see an increase in rates, but not a dramatic overnight rise in rates. Instead we’re going to see a gradual and steady increase in rates. Why not a major jump? A couple of reasons:
- The Fed has been announcing that they were stopping their purchasing of mortgage backed securities the end of March for many months. It’s not a surprise.
- Because it’s not a surprise, the reaction in the investment community will be more focused and analytical rather than a “knee jerk” reaction.
But remember, these are all just opinions……
Mortgage rates poised to jump as Fed cuts funds
The Federal Reserve is poised to turn off a major money spigot that has helped sustain the ailing real estate sector, as an extraordinary program under which the Fed has pumped $1.25 trillion into the mortgage market is slated to end March 31.
“Housing has been on government life support, and without it the crash would have been much more severe,” said Mark Zandi, chief economist with Moody’s Economy.com in Pennsylvania. “This spring and summer as those policy efforts unwind, we most likely will see mortgage rates move higher and more house-price declines.”
Technorati Tags: The Fed, Mortgage Rates
Related Posts
- December 15, 2009 — Mortgages and the Fed
- December 14, 2009 — The Week Ahead
- December 8, 2009 — The Fed – 12 to 18 months……
- November 7, 2009 — The Fed – What They Watch – and What It Means for Mortgage Rates
- November 5, 2009 — A Kick in the Stomach? by the Fed?
Mortgages and the Fed
Related Posts
- December 14, 2009 — The Week Ahead
- December 8, 2009 — The Fed – 12 to 18 months……
- November 7, 2009 — The Fed – What They Watch – and What It Means for Mortgage Rates
- November 5, 2009 — A Kick in the Stomach? by the Fed?
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
The Week Ahead
So, last week was a relatively light one in terms of economic news. This week will be a bit heavier…..
- Tuesday – The Housing Market Index, Industrial Production and Capacity Utilization.
- Wednesday – Housing Starts and Architecture Billings Index for CRE (Commercial Real Estate), the Fed’s meeting announcement, CPI (Consumer Price Index)
- Thursday – The Philly Fed Index
So what do they mean and what impact will they have?
First – Anyone who tells you they know is lying.
Secondly, here’s what I think is going to happen……
- All of the reports except the Fed are going to come in lukewarm. Those with positive outlooks on things will be able to find something to be happy about. Those with
realisticpessimistic outlooks on things will find things that they can point to in order to say that things aren’t going well. - The Fed will issue their report and talk about how good they think the economy is looking. The markets won’t believe them.
- We’re going to end up with a very volatile ride this week, but by the end of the week, there won’t be anything that has a substantial impact on mortgage rates.
Therefore, my prediction for the week is that we’ll see a LOT of interest rate volatility but it will be mainly noise and we won’t see any substantial movement either up or down.
Let’s see at the end of the week whether I was able to predict the market any better than the weather people in Michigan can predict the weather!
Tom Vanderwell
Related Posts
- December 15, 2009 — Mortgages and the Fed
- December 8, 2009 — The Fed – 12 to 18 months……
- November 7, 2009 — The Fed – What They Watch – and What It Means for Mortgage Rates
- November 5, 2009 — A Kick in the Stomach? by the Fed?
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
The Fed – 12 to 18 months……
Last week, we had the report from Goldman that said that rates will stay where they are until late 2011 or early 2012. Today, we get Morgan Stanley saying that the Fed will raise rates in the later half of next year.
I’m going to continue with what I’ve said before. We are, in my opinion, 12 to 18 months from being in a situation where the Fed needs and is actually able to do anything with interest rates. There is simply too much slack in the system and too many “precarious” situations that anything beyond a token (.25 to .5) would be called for.
But I have to admit, I’ve been saying 12 to 18 months for at least 6 months now and the time frame keeps pushing on the longer it takes until we see signs of pulling out of this mess. I was using the analogy the other day that says that we’ve stepped away from the edge of the cliff but we’ve got about 3 miles of swamp land to trudge through before we come out of it. The longer it takes to tromp through the swamp, the farther out until the Fed starts cranking up rates.
More later,
Tom Vanderwell
Calculated Risk: Morgan Stanley: Fed to Raise Rates in 2nd Half of 2010
In a research note titled: “The Fed Will Exit in 2010″, Morgan Stanley’s Richard Berner and David Greenlaw forecast that the Fed will raise the Fed Funds rate in the 2nd half of 2010 to 1.5%.
They are forecasting GDP to increase 2.8% in both 2010 and 2011, and for unemployment to peak in Q1 2010 at 10.3%, and decline to 9.5% in 2011.
Related Posts
- November 7, 2009 — The Fed – What They Watch – and What It Means for Mortgage Rates
- November 5, 2009 — A Kick in the Stomach? by the Fed?
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
- September 21, 2009 — Why Mortgage Rates are going up in November…..
- June 10, 2009 — This is one of the reasons that mortgage rates are going up…..
Five Years – Gulp….. What does that mean for the housing market?
Let’s take a look at what this means for the housing market:
- If it takes 5 years before we see sustainable growth, then it’s going to be a very slow rebound to the jobs market.
- If it’s going to be a slow rebound to the jobs market, then delinquencies on mortgages will continue to climb and will remain an ongoing problem for Fannie, Freddie and FHA.
- If delinquencies continue to climb, then we’re going to see continued tightening of underwriting guidelines.
- If we see continued tightening of underwriting guidelines, then we’re going to see continued pressure on house prices.
- If we see continued pressure on house prices, we’re going to see a continued lack of inflation and potential deflation.
- As we see continued lack of inflation and potential deflation, we’re going to see interest rates remain lower. Not as low as they are now, but still in the lower ranges.
If you had asked me 3 months ago, I was telling people that I thought we had 12 to 18 months until we started seeing significantly higher interest rates. I was also telling people that I expected that most markets would see property values bottom in 2010 and start a gradual rise from there.
If the 5 year time frame is accurate, both of those time frames are going to extend outward significantly. Rates will stay lower for longer and it’s going to be longer until we see a bottom in house prices.
So what’s it going to take to turn it around? I’m working on some ideas, but I’ll be honest with you, the only ways that I can see are frankly quite radical. How to describe it? Three words:
Massive Systemic Deleveraging.
Hey, I didn’t start Straight Talk about Mortgages because I wanted to sugar coat things. I started it because I believe people need to know the truth as I see it. And that truth isn’t pretty right now.
Tom Vanderwell
FOMC Sees Sustained Growth Five Years Away : HousingWire || financial news for the mortgage market
It will be at least five years before the economy experiences a sustainable rate of growth and levels of unemployment and inflation acceptable to the Federal Reserve, the Federal Open Market Committee said in its Nov. 4 meeting.
Meeting participants, including members of the Fed Board of Governors and the presidents of the Federal Reserve banks, believe economic recovery will be gradual, with real gross domestic product (GDP) growing at a moderate pace and the unemployment rate declining slowly over the next few years. During this time, inflation will remain subdued, the committee said.
The committee increased its projections for real GDP growth for this year, after the second half of the year outperformed its original June projections.
The committee also agreed to maintain the current 0 to 0.25% federal funds rate, noting economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The committee affirmed its intent for the Federal Reserve to purchase a total of $1.25trn of agency mortgage-backed securities and about $175bn of agency debt.
Technorati Tags: The Fed, House Prices, Mortgage Rates
Related Posts
- December 9, 2008 — House Prices and Interest Rates
- November 24, 2009 — Underwater Housing – Your Mileage May Vary…..
- November 24, 2009 — 23% Underwater – your results may vary…..
- November 21, 2009 — A History of Home Prices
- November 10, 2009 — I agree with what Lawrence says but not what he means…..
The Fed – What They Watch – and What It Means for Mortgage Rates
An interesting analysis of the Fed, what they are watching and what it means for rates. Here’s the “plain and simple” version of what it says:
- The Fed is concerned about inflation and only inflation.
- The employment and capacity utilization is currently so low that the economy will have to really “heat up” before inflation would become an issue.
- The “fact” that the Fed is ignoring other issues and focusing only on inflation means that short term rates will stay low for a substantial length of time. The writer estimates until at least 2011.
- However, the fact that those issues are ignored means that we’re going to be looking at higher long term rates.
So, let’s summarize – if this scenario is true, we’re looking at a market situation where short term rates stay low and long term rates go up.
Going to be interesting.
What do you think?
Tom Vanderwell
Accrued Interest: Fed Rate Hikes: Your employment statistics. You will not need them.
The bold section is new, and if taken at face value, it tells you exactly what the Fed considers the sign posts for higher rates. Inflation. Nothing else.
……For what its worth, I think the Fed considers bringing down their balance sheet as a bigger priority than altering rates. This is my impression from taking the mosaic of Fed interviews and speeches I’ve heard in the last couple months. That view reiterates the idea that short-term rates remain low for a long time, but it brings into question what happens to other assets, especially long-term Treasuries. The Fed bought 23.5% of Treasuries issued in 2009. In 2010, it is projected that the budget deficit will ease somewhat, but it will still be sharply negative. I think Treasury issuance rises. So with out the Fed buying, don’t intermediate-term rates almost have to rise?
Related Posts
- November 5, 2009 — A Kick in the Stomach? by the Fed?
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
- October 2, 2009 — Jobs Report – Option #3
- September 21, 2009 — Why Mortgage Rates are going up in November…..
- June 10, 2009 — This is one of the reasons that mortgage rates are going up…..
A Kick in the Stomach? by the Fed?
Yeah, that’s right. The biggest kick in the stomach since the September/October meltdown of 2008. What is that kick in the stomach?
It’s the government’s withdrawal from the mortgage backed securities market. We’ve already talked about how the government’s market share in the residential mortgage market has climbed to an all time high. But this is something else. In addition to that, the government has committed to spending almost $1 Trillion (that’s $1,000,000,000,000) in buying mortgage backed securities in an effort to keep rates lower.
If you recall, when the Fed announced they were buying Mortgage Backed Securities, rates dropped by .375% over night. As we’ve discussed on here before, many people believe that it’s reasonable to expect rates will edge up by about that amount over the next 5 months as the Fed winds down their purchase plans.
But this article, and the report that Meredith Whitney gave yesterday (see the next post) give serious credence to the fact that it could be substantially worse than that. Why?
- Because the credit qualify of mortgages has deteriorated substantially since then.
- Because the investment market has changed since then.
- The appetite for mortgage backed securities is probably substantially less than what they expect that it is.
Now if we apply the Vanderwell Rule of 50% (what’s that? – simple, take their estimates and “tone them down” by 50%) what does that say for mortgage rates?
It essentially says that we’re going to be looking at a minimum of .5 to .75% higher rates in the next 6 months.
Tom Vanderwell
I’d qualify that – I’d say let’s hope it emerges into the public view over the next four months, because it could be – if the Fed exits as planned at the end of first quarter 2010 – the biggest kick in the stomach housing and financial markets have gotten since surviving the near total shut down of credit last fall.
Technorati Tags: Mortgage Rates, The Fed, Meredith Whitney
Related Posts
- November 7, 2009 — The Fed – What They Watch – and What It Means for Mortgage Rates
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
- September 21, 2009 — Why Mortgage Rates are going up in November…..
- June 10, 2009 — This is one of the reasons that mortgage rates are going up…..
- December 16, 2008 — The Fed Translated….
So how high are rates going to go when the Fed stops buying mortgages?
So, how high are interest rates going to go when the Fed stops buying mortgages?
A couple of thoughts along that line:
- When the Fed announced that they were going to start buying mortgage backed securities, rates dropped .375% overnight. So it would be logical to assume that rates would go up by that amount when they are “all done.”
- If you read the article from Housing Wire (just part of it is below), it says that there are a couple of scenarios that could play out: 1) That we’ll end up around .20% above where we’re at now or 2) That we’ll end up around .25% higher but will overshoot (meaning go up by around .75%) and then settle down.
The third theory is that we don’t know what’s going to happen because the Fed’s “pull back” is going to cause other buyers to step out of the market until it stabilizes and the end result of the Fed’s finishing up their purchases is going to probably going to mean substantially higher rates.
Will the Fed’s movement cause us to hit 6% by April? I don’t think so. But it certainly appears that we’re going to be looking at least an additional .25 to .5% higher rates than we have now.
Tom Vanderwell
Not all analysts writing about the Fed’s departure will quantify the widening, but a couple have screwed up their courage to put a number on it. One house expects OAS to widen about 20 basis points from current levels, while the other expects OAS to overshoot by about 30-40 basis points before stabilizing around 25 basis points above current levels. All else equal (a brave assumption), mortgage rates would adjust upward in a comparable manner (saying more would be to start down a slippery slope).
Projecting a widening of 40 basis points (or less) may be a tad optimistic, especially at the outset, when the Fed shuts down. Buyers will step back until the inevitable widening appears to be over or close to it – a process that can feed on itself as investors recalibrate perceptions and rules or thumb re: what’s cheap enough. After all, these are unprecedented circumstances the market faces, and history is likely to be a faulty guide. Consider too that many market-value-sensitive investors will be trimming positions (lowering their mortgage weightings in favor of appealing corporate spreads, for instance) as the end of 1st quarter 2010 approaches in order to avoid the price impact of the inevitable widening.
Technorati Tags: Mortgage rates, The Fed
Related Posts
- September 21, 2009 — Why Mortgage Rates are going up in November…..
- June 10, 2009 — This is one of the reasons that mortgage rates are going up…..
- December 16, 2008 — The Fed Translated….
- December 9, 2008 — House Prices and Interest Rates
- August 8, 2008 — Mortgage Market Week in Review
“Systemic Oversight Council?” That’s supposed to address the Too Big To Fail issue?
Bernanke says we need a systemic oversight council to monitor the risk that banks are taking.
A couple of questions:
- Do you think that creating a government oversight committee would prevent the type of problems that we have right now?
- Do you think that maybe if we went back to the way the old rules were that would work? You know, the rules where commercial banks (those who handle people’s deposits) can’t get involved in the things that investment banks (those who borrow 99.5% of the cost of an investment and ride the leverage roller coaster?) Yeah, those rules worked quite well from the 1940’s until recently when “we” decided that “it’s different this time” and that the market will always go up.
Do I agree that we can’t continue with the same old thing? Yes. Do I think this is the answer? Nope.
A massive systemic overhaul of the way banking is run and the size of the financial institutions is the only way that we’ll be able to prevent this from happening again.
Tom Vanderwell
Federal Reserve chairman Ben Bernanke called for the creation of a “systemic oversight council” to monitor and address risks inherent in the complex US financial system.
“Because of the size, diversity, and complexity of our financial system, that task may exceed the capacity of any individual supervisor,” Bernanke said during a speech at the Federal Reserve Bank of Boston’s 54th Economic Conference.
The council could be responsible for monitoring risk exposures that emerge from both firms and markets, identifying regulatory gaps, organizing responses to emerging risks and highlighting systemically important firms. The council would report to Congress and the public on detected risks and the proper response, Bernanke said.
Not just the Federal Reserve but all financial supervisors and regulators should take account of threats to the broader financial system as part of their normal responsibilities, Bernanke said.
Bernanke cited the problem of financial institutions deemed “too big to fail.” He urged Congress to close the gap between large complex financial firms, which pose risks to the overall system without owning a bank, and their lack of comprehensive oversight.
“Large financial institutions manage their businesses in an integrated manner with little regard for the corporate or national boundaries that define the jurisdictions of functional supervisors in the United States and abroad,” Bernanke sad.
Technorati Tags: The Fed, Bernanke, Too Big To Fail
Related Posts
- March 20, 2009 — Fed Chairman Bernanke – Too Big to Fail?
- December 16, 2008 — The Fed Translated….
- October 26, 2009 — So how high are rates going to go when the Fed stops buying mortgages?
- October 26, 2009 — Fed Chairman Ben Bernanke made a speech on Friday….
- October 21, 2009 — Moral Hazard and Too Big to Fail
Volcker and Government Programs – what does it mean to interest rates?
Okay, here’s basically what Paul Volcker is saying:
- The government needs to start unwinding the “bailout” programs that it has done and it needs to do that before it looks like they need to, not after we can all see that we need to.
- If we wait until we can see that we need to do it, it’s too late and the problems are going to get out of control “on the other side.”
- He’s got a lot of credibility in this area because he is the guy who gets credit for stopping inflation back in the early ’80’s but he had to raise rates to 20% to do so.
So what does that mean to interest rates? Particularly the rates that we’re most concerned with, mortgage rates?
A couple of thoughts:
- If the government unwinds their programs (the free money, the ultra low interest rates, etc.) in a systematic and measured response and starts doing so before inflation becomes an issue, I expect that we’ll see interest rates go up by a substantial but rational amount.
- If the government doesn’t unwind their programs until after inflation becomes an issue, then we’re going to see the entire interest rate market get hammered and we’re going to see the Fed have to raise short term rates a LOT higher than they would if they have a reasoned and proactive approach to it. This in turn will put a LOT of upward pressure on mortgage rates and I expect we’ll see rates that will make us long for the days of 6 and 7% rates again.
Let’s face a couple of realities of the markets:
- Money can’t stay “free” forever. Rates are going to go up – the only question is by how much.
- When someone borrows money, they eventually have to pay it back.
- The greater the risk of inflation, the higher the rates are going to be.
- The more proactive the government is fighting inflation, the lower rates are going to be.
If you want to talk about this or about anything else, feel free to call me at (616) 292-7559 or e-mail me at tvanderwell@straighttalkaboutmortgages.com.
Thanks,
Tom Vanderwell
Fed Can’t Wait Too Long for Policy Shift: Volcker – General * US * News * Story – CNBC.com
The enormous amounts of liquidity pumped into the U.S. financial system by the Federal Reserve are not inflationary “at the moment” but will become so at some point, Paul Volcker, the former Fed chairman and a White House adviser, said on Thursday.
Volcker, now an economic adviser to President Barack Obama, said it was difficult, but necessary, to start draining the billions of dollars in liquidity even while unemployment rates remained high as the U.S. battles out of recession.
“You have to act against what seems like common sense. If you wait, it’s too late,” Volcker said while answering questions after a speech on financial markets at Harvard University’s Kennedy School of Government.
Volcker is best known for bringing down raging inflation in the United States after he was appointed Fed chairman in 1979 — chiefly by pushing the federal funds rate, the central bank’s key policy tool, to a peak of 20 percent in 1981.
Technorati Tags: Interest Rates, Mortgages, Paul Volcker
Related Posts
- August 1, 2009 — Why we don’t have to worry about the Fed raising rates soon…..
- June 6, 2009 — Interest Rates and the Fed…..
- October 12, 2009 — When should the Fed raise rates? (Hint – what I’ve been saying might be early…..)
- September 21, 2009 — Why Mortgage Rates are going up in November…..
- August 12, 2009 — The Federal Reserve – and Mortgage Markets