It was the best of times, it was the worst of times…

The month of May was the third month in a row for stock market gains. I realize that many in my audience of real estate professionals have had a hard time enduring this market, but if you have anything left in the bank, my advice would be to throw it at stocks. Alright, it’s not that easy, but simply put, stocks have been appreciating as the credit freeze and bank liquidity crisis has settled down. The S&P 500 has gained about 34% since its March low, jobless claims are slowing down, consumer confidence is increasing and oil prices are rising. All good news right?

Not so fast. As one would imagine, this has not helped mortgage rates as of late. Follow the logic even further and you should be fearful that these higher rates will put a damper on our beloved housing market that was just finally starting to take off. The good news is that rates are only part of the “home buying equation”. Think about this for a second. Our industry does not thrive on appreciating markets, but rather transaction volume. Many houses are now more affordable, families are saving money for down payments, and rates are still relatively low.
As you know, the Federal Open Market Committee (FOMC) is meeting today and tomorrow to discuss the direction of interest rates. It will make a statement tomorrow at 11:00 AM PST. Here are my predictions:

-The Federal Funds (Prime) rate will stay the same
-The Fed will make a statement that inflation is “contained”
-And of course there will be some of ambiguous statement to the tune of “the weakness in the economy is still a major factor to be dealt with.”

What the mortgage market is looking for is some clue that the Fed will continue to inject money into the economy by buying Treasuries and mortgage bonds from Fannie Mae and Freddie Mac. If they make this statement, expect rates to drop dramatically for a few days. Who knows, we may see rates as low as 5% or below.

Ryan Ogata
Senior Mortgage Consultant