Today’s Federal Reserve FOMC meeting statement basically indicated that they expect to leave the overnight Fed Fund’s Rate at 0 -.25% till 2023, and will continue their asset purchases of $80B in US Bonds and $40B a month in mortgage backed securities till they see employment stability and inflation at least hits their 2%+ target.
The Fed’s purchase of mortgage backed securities artificially lowers the mortgage rates below where they would be in a normal financial market. That helps buyers purchase property and existing owners refinance at lower rates and lower debt service.
Chairman Powell indicated during the press conference Q&A that he’s not concerned about the housing prices going up, and that it’s primarily pent up demand. Once the demand is met, pricing will stabilize. We can expect the Fed to scale back on their asset purchase well before they start adjusting the Fed Funds Rate.
The Fed will adjust according to the needs of the economy. Long term Fed Funds rate is estimated should run around 2.5%.
Obviously the next 3 months with COVID spiking and the service sector in poor shape, economic statistics will be weak. What we have to watch up for is an upside surprise in the second or third quarter of 2021 once the vaccine permeates through the population. There is a pent up demand in many areas of the economy, once people can congregate again.
The attached chart of mortgage backed securities shows the stability of the rates in the secondary money market since August. What it doesn’t reflect is underwriting tightening in areas like self-employed borrowers and investment property financing. Those types of loans have higher risk factors because of rent forbearances and the present economic uncertainty because of gov’t restrictions. Many lenders staffed up, and as loan volume eases, some lenders are dropping rates to be competitive. Mortgage rates are around 1 1/8% lower than a year ago.
When submitting loans I have to shop for the best blend of rates and execution. Some lenders are aggressively priced but can take several weeks to review a condition or reply to communication. I have other lenders that respond within 1 day. Not all borrowers or lenders are created equal. No better time than now to have a professional work on loan brokering. Online origination systems and major bank “clerks” generally don’t have the understand of the nuances of mortgage elements.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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