Mortgage Rates Fly All Over the Place

If you are interested in doing a mortgage, this week has been one for tracking interest rates. We started the week closed for Martin Luther King Day and the global markets were hammered due to concerns regarding a slow down and possible recession in the US. Tuesday, the Fed rushed in before the markets opened and slashed the rates by .75% trying to stave off a market decline in the markets. It helped, if only marginally. Wednesday, it seems like things would continue to weaken until late in the day when news that bond insurers (much in the news these days) were hopefully going to be bailed out. Today, more news that our government was going to put rebate checks out to most Americans in the coming months made everyone happy for the most part.

All this has had a major impact on mortgage interest rates and all have had a very different effect.

Basically, if you are into treasuries, this market has left you motion sick.

When the Fed cut the rates, there already was a concentrated flight to quality and away from equities. Also the Fed statement made it clear that it was likely to cut rates again at it's normally scheduled meeting next week. With these comments, many traders felt that the Fed was acknowledging that the economy was slowing much, much faster than they had anticipated. This caused even more flight to quality.

The result, a major drop in mortgage interest rates. While the rates had been good leading up to this week, rates late Tuesday and into early Wednesday were fantastic. We had not seen rates this good in the last couple of years. But as news about bond insurers leaked out and that market started to turn (a 600 point swing for the Dow) traders started to get out of treasuries....fast.

In fact the action was so fast that the rates at start of business Thursday were HIGHER than the rates at the start of Tuesday. This was amazing considering how unexpected the Fed move and statement had been before the open on Tuesday.

Here is my take. These rates we are seeing are a fleeting thing. My prediction, along with the place that I work prediction is that this is a bottom for interest rates. We feel that the Fed, if they do cut rates next week are going to wait and see what happens and not be as quick on the trigger in the future. They are going to want to see what effect this has on the market. The other aspect with the Fed rate going this low is that inflation is going to start to show itself more firmly in the next couple of months. Inflation is definitely the enemy of treasuries.

As inflation rears up, treasuries will sell off and raise long term lending rates. If you really are serious on purchasing and/or refinancing, you better get on board now. I foresee rates climbing back up in the next 6 to 8 weeks. This is a small window of time to find a home and get locked in. I could be wrong, I've been doing this long enough to know that the market is a fickle thing. But I think I have this one pegged.