Beware of Mortgage Rate Hike Early Next Year

by Rodney Forbes on December 17, 2009

If you’ve been thinking of taking advantage of low real real estate prices, Home Buyer Tax Credits and low mortgage rates, you may want to make a move. Lock in low 30 year mortgage rates while you can. The following excerpt from The Mortgage Reports indicates mortgage rates may be ready to rise soon.

Since March, the Fed has used its statements to say that the economy is growing, but remains threatened by job loss and lack of consumer spending. This is a major reasons why mortgage rates are still so low. Growth has been tempered by dour attitudes and the Fed knows it.

But then last month happened.

        Net job gains were nearly positive and much better-than-expected
        Retail Sales for November posted much higher-than-expected
        Consumer Confidence numbers rebounded strongly
The Fed’s chosen “3 main threats to growth”, it seems, are now showing signs of rebirth. Rate shoppers should hope the Fed glosses over these facts because if its makes mention of the points in its press release, mortgage rates will jump.

Even if the Fed Funds Rate is unchanged.

Since 2000, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage has been as narrow as 1 percent and as wide as 5 percent. In 1973-74 and again in 1980-81, the spread actually went negative; mortgage rates were below the FFR.

So, all of this to say: Don’t expect mortgage rates to remain unchanged just because the Fed Funds Rate is unchanged. The two don’t move in tandem. Rather, mortgage rates react to the Fed’s words and that’s why the Fed’s post-meeting press release is so important.

If the Fed shows optimism for the economy in its statement, mortgage rates will rise. If the Fed shows pessimism, mortgage rates will fall. Either way, be on alert.

Courtesy of Dan Green

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. You can also call 561-337-4810.

Rodney Forbes is a licensed Realtor®, certified short sale/REO specialist and broker for Forbes Realty of South Florida Inc. Rodney has co-authored the book “Should I Short Sale My Home?”. Get your FREE copy at www.SouthFloridaRealEstateReport.com

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