Mortgage Rates

June 9, 2009
Matt Isleib

 

If the Fed and the Obama administration were banking on low interest rates to help spur the ailing housing market and then help jump start the economy I hope there is a plan B because that plan has backfired. Mortgage rates have skyrocketed in the past three weeks. They have moved from the low 4’s to near 6 percent a sudden jump that no analyst had expected.

The Fed had previously announced a $1.2 trillion plan to backstop ten year treasury notes as well as mortgage backed securities both which are benchmark indicators for mortgage rates. They announced their intentions on doing what they needed to do to keep mortgage rates low. It is clearly apparent that the task at hand was underestimated as traders and lenders have rushed to dump treasuries and mortgage backed securities faster than the Fed can apparently print money to throw at a problem.

So the question is where do we go from here? I do not think we see 30 year fixed rates back in the 4’s anytime soon. As far as the housing market the spike in rates will definitely take effect. Such a large movement in rates can mean hundred of dollars per month difference in mortgage payments. That may change people’s minds on buying that new home. As for the people who are trying to refinance the Fed needed rates in the 4’s to keep the refinance window open. There is a large majority of mortgages that are presently in the 5 percent range from the last refinance boom, take them out of the equation and you have a small pool of people that may still benefit from refinancing. So much for the economy and housing market, the Fed is going to need a rabbit in their hat to fix this one.