Mar 19, 2009 5:49 pm US/Central
Stimulus Money Flood To Keep Mortgage Rates Low
MINNEAPOLIS (WCCO) ―
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The Federal Reserves' action to purchase more treasury bonds and mortgage backed securities will push bond prices higher and long-term interest rates lower.
CBS
Now that the Federal Reserve has worked its magic on short-term interest rates, pushing them to near zero, its attention is focused on long-term rates. On Wednesday, the Fed announced plans to pump another $750 billion into the economy in the latest effort to lower mortgage rates and loosen frozen credit.
The Fed's action to purchase more treasury bonds and mortgage backed securities will push bond prices higher and long-term interest rates lower.
Its action is already having an effect: the interest charged by Wells Fargo on a 30-year conventional mortgage dropped by a quarter percent to 4.65 percent, the lowest it's been in 40 years.
Rates didn't perform as well on Thursday, closing up about an eighth of a percent, but economists say it's a good sign that the troubled housing market is poised for recovery.
"The beauty of the Fed policy is you don't have to be in trouble to take advantage of this. Everybody has the opportunity to grab these low interest rates," said Wells Fargo's senior economist Scott Anderson.
He said the bank's phones were swamped on Thursday with customers calling for more information about mortgage rates and refinancing.
However, the Fed's action is also good news even if you're not buying or refinancing a home. That's because it's also going to help ease credit for struggling businesses, auto dealers, manufacturers and should help get builders, building again.
"It's great news for the consumer, great news for our industry as well," said Tom Joslyn, Chief Operating Officer for Bell Mortgage.
The company is already expanding its staff as business begins to pick up. Joslyn said a combination of refinancing and first-time home purchases has increased Bell's business about 40 percent over last year.
The Fed's action also gives some badly needed reassurance to consumers that the lowest mortgage rates in decades will be here for a while.
"It does mean that we've got a very good chance of keeping rates at 5 percent or below 5 for the rest of 2009. Whether it actually hits 4 percent or not will be a function of the demand and how quickly our industry can respond to it," said Joslyn.
(© MMX, CBS Broadcasting Inc. All Rights Reserved.)
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