Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention -- a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business -- just when you discover the market's balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close -- just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it's not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there's a dramatic shift, chaos can creates opportunity. Tuesday's $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven't spoken to your loan officer about a refinance, consider calling today.
This weeks Housing Starts data is good news for home sellers. Housing Starts fell in October to their lowest levels since 1947. Building permits were also down. Fewer homes under construction results in less inventory for home buyers to select from. Decreasing supply will add a strong support floor to home prices. Sellers may feel less pressure to lower asking prices. When supply is less than demand, prices increase, and vice verse.
(Image courtesy: The Wall Street Journal)
Effective January 1, 2009, FHA loan limits revert to pre March 2008 levels.
FHA home loans are mortgages made by private lenders and insured by the federal government.
2009 FHA loan limits (in most areas of the country) are:
Note that the loan limits don't apply to all areas of the country equally. Higher-cost regions feature higher loan limits, based on typical home values.
The official FHA announcement published all of the counties with access to higher loan limits, spread across two spreadsheets. The first spreadsheet lists each county at the $625,500 maximum; the second list is everyone else.
If your home county is on neither list, use the "base" numbers above.
For the hundreth time, all real estate is local. Zillow.com reported today home values in Simpsonville, SC decreased a paltry -.11% in the third quarter of 2008. Great News for buyers and sellers in Simpsonville. Our market, although not unscathed, is certainly much stronger than most media folk would have you believe. This number is substantially lower than the -9.7% decrease nationwide. Often, perception is realty. It is tough dealing with home buyers and home sellers in a down market. Use this data to keep them informed of local conditions.
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