Fed Watch

By: Mark Wisterman

 

My 2013 Photo-Web-Revised

Tomorrow is being heralded as a big day on Wall Street as the Federal Reserve is widely expected to announce that they will begin pulling back from their policy of artificially suppressing interest rates at the current level.

Fed Chairman Ben Bernanke achieved exactly what he set out to do when he rattled the markets in May with talk of tapering. Here’s how:

1. He got the market’s attention that it was not going to go on forever, as some seemed to think, and …

2. He set the stage for very little to happen tomorrow if they do indeed announce the pull back.

Although about the only surprise will be if the Fed continues the current levels of bond purchasing, there are going to be oodles of second guessers, complainers, and Monday morning quarterbacks who will be offering one of following Goldilock’s style complaints:

1. The reduction in bond purchases is too large.

2. The reduction in bond purchases is too small.

3. The reduction should not happen at all because not everything in the economy is “just right.”

Since everyone will have an opinion on this I guess I get to tell you mine:

From a real estate standpoint it is time to end this program, and the sooner the better. Thanks to this program and, the cruddy economy that has also forced interest rates down, the populace has become spoiled and thinks that interest rates above 4.5% are high. The free market must be allowed to function FREELY. That is the ONLYway to have long term health in the housing market.

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Mr. Toad’s Wild Ride

By: Mark WistermanMy 2013 Photo-Web-Revised

 

Wow! Now that was quite a week in the Lake Oroville real estate market and beyond!!!!!!!!

The events of the week brought back a memory or two of the past when I worked with Bob Beever. Bob had a lot of favorite little sayings. One of them was, “It was like being on Mr. Toad’s

Wild Ride!” Now, I can’t really remember in what instance he used it, but I know what he meant, because I have been on Mr. Toad’s Wild Ride. And, even if you have never been to Disneyland,  you have just experienced it for yourself  if you are currently attempting to buy a home, or sell a home right now.

Mr Toad Wild Ride

Unless you have been hiding under a rock, or camping out on Lake Oroville with no contact with the outside world, you know that mortgage rates took off faster than a speeding bullet this week. It is interesting, and somewhat disappointing  to me to see the reaction to what transpired this week.

Just a month ago, on this very Lake Oroville real estate market  blog site, we discussed the potential for rates to jump like this See my post of May 23, 2013. So what happened to make interest rates move like they did. If you listen to the media, you would think it was all Federal Reserve Chairman Ben Bernanke’s fault. Bernanke was quoted as saying that if the economy continues to improve as the Fed is projecting, that there could be reduction in the amount of bond purchases that that the Fed is making sometime towards the end of this year and it is possible that by mid-2014 they will discontinue the bond purchases all together. Remember, these bond purchases, of over $1 TRILLION per year, are being used to artificially keep interest rates low in an effort to help the economy improve.

I have wondered for a while now how Bernanke is going to extract the Fed from this bond buying without tanking the housing market and the economy. Taking a trillion dollars out of the economy without sending it spirally out of control is going to take more magic that even David Copperfield can conjure up.

Here is my take on this: 

There is NO WAY that Bernanke can just come out one day, cold turkey, and say that the Fed has actually begun to pull back.  He has to ease into this. To do otherwise would be an utter disaster. In my view the stock market would probably drop 20% in a day if he just announced the end without any warning.  His testimony to Congress last month and his press conference this week is his way of  trying to avoid a meltdown.

Which brings me back to my comment about my disappointment with the reaction to all of this.

It seems that everyone is blaming Bernanke for the jump in rates and the drop in the stock market. Now, although I did stay at a Holiday Inn Express last night, I am not smart enough to know if Bernanke has handled this absolutely correctly. But you could have stayed at a Motel 6 last night and still figured out that this program has to end sometime and the end was getting closer. But no!! Wall Street’s reaction was like that of a spoiled kid having his allowance taken away!  In reality Bernanke didn’t change anything with regards to the bond buying, but the market absolutely ignored the “facts on the ground” and reacted with pure emotion sending rates on an upward spiral that still continues today, yet at a much smaller pace.

As with all reactions of this magnitude you should expect to see rates moderate in the coming few weeks and may even back track a bit as the market sees that the economy, while stronger, is far from strong and may even weaken in the 2nd half of the year which, in my opinion, will keep rates in the 4.25%-4.75% range.

 

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LOCK…LOCK…LOCK

For those of you in the Lake Oroville housing market and the real estate markets of Chico, Paradise, Yuba City, Marysville, Gridley, Biggs and Durham, who did not see the Facebook posting I made on my business page yesterday at Facebook/RealtyWorld.CA, and, since I have not seen this recommendation from any other area real estate agent anywhere on the ‘net, I will repeat what I advised my Facebook readers to do:

If you are working on a loan for the purchase or refinance of a home, you need to have a SERIOUS  discussion with your lender about locking your interest rate ASAP.

CurrentLast Week

As a former financial advisor with a major Wall Street firm, I have seen this type of market volatility before and I will tell you that when you get the gigantic drop that the stock market took today and the huge drop in interest rates that came with it, there is a better possibility that that stocks and interest rates will “bounce” off these lows very quickly, then there is of rates continuing to fall in a fashion that makes it worth the risk to “wait and see” what happens.

There are two events coming up that make it a good idea to consider locking your rate as soon as your loan officer is available to do this for you.

1. The monthly employment numbers will be released tomorrow. If the numbers are at all better than analysts are expecting, or even in line with expectations,  I anticipate that interest rates will tick up slightly. If, as some suspect, the number is worse than the overall consensus expectation you may see rates tick down on the news. But not by much (unless the number is some off the wall number like 10% unemployment).

2.  The weekend is here. In a volatile market like this, and with rates as low as they are now, waiting through the weekend may cost you. If there is any positive economic developments from the international markets over the weekend it most likely will cause some upward movement in rates before your feet even hit the floor Monday morning.

Obviously, there is no way to know exactly what rates are going to do in the coming days, and , as I am no longer a professional financial advisor, the above comments should not be considered financial advice. I want you to be sure and make your own decision about this based on your current financial situation in consultation with your personal finance management team.

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