November 25, 2008

It's Like The Fed (And Taxpayers) Just Bought You A Couple Of Points

"U.S. mortgage rates fell more than three-quarters of a percentage point today after the Federal Reserve said it will buy as much as $600 billion of debt."

U.S. Mortgage Rates Fall on $600 Billion Fed Plan [Bloomberg]
As Lenders (And Consumers) Hoard, The Fed Commits Another $800B [SocketSite]

First Published: November 25, 2008 3:00 PM

Comments from "Plugged In" Readers

So if yesterday I could get a 6.3% 30-year fixed to buy a $1 million house (20% down, 80% loan), my monthly payment was about $4,952.

And tomorrow, with the Fed's help, I can get the same loan for 75 basis points less, or 5.55%, that implies a monthly payment of $4,567. That means I save $385 per month on my $1 million house. Thank you, Ben.

Or, I could wait a year for prices to fall another 10-30%, and save $100K - $300K.

Hmm...which is a better deal?

It would take me over 21 years for the $385 monthly savings to break even vs. prices falling only 10% (assuming no time value of money). And prices will probably fall more than 10% over the coming year

Thanks, but no thanks. I think I'll wait for prices to fall.

Posted by: DataDude at November 25, 2008 3:25 PM

Where are we? Japan?

Didn't work there either.

But it won't stop us from trying!

Posted by: tipster at November 25, 2008 3:41 PM

Without the sarcasm, wondering if anyone can tell me what this might do for a refi?

Posted by: Amy at November 25, 2008 3:45 PM

Do it fast Amy. Rates dropped, then immediately started rising.

"The average U.S. rate for a 30-year fixed mortgage ended the day at about 5.5 percent after falling to as low as 5.25 percent"

That means they ROSE 0.25 percent in the last hour.

Posted by: tipster at November 25, 2008 4:00 PM

Without the sarcasm, wondering if anyone can tell me what this might do for a refi?

Honestly, nobody knows.
The problem is that much of our economy right now is based on reflex actions by our federal govt. In general, each stimulus does not last long. However, the stimuli (sp?) are coming at a faster and faster rate and at bigger and bigger dollar volumes.

Our federal govt spent 1.3 TRILLION dollars in the last 48 hours. how much longer can they do this? I dunno... but not for long.

that said, regardless of the govt, it is still UNLIKELY that we will see much of a drop in mortgage rates from here.
the reason I say this is that Mortgage rates as of today are near historic lows again. it is less likely that our govt would subsidize super-historic low rates... they have other things to subsidize... but I wouldn't put anything past them

as I've said on socketsite before, almost NO economic analysis can be done because the decisions are being made by just a few people (maybe 10 people on earth) and their decisions are not being made on economic grounds, but on political grounds.

as always, people will applaud this... until the bill comes. we seem to be very very very good at spending now and leaving the bill for later.

Posted by: ex SF-er at November 25, 2008 6:35 PM

We are once again too focused on one aspect and not analyzing the situation as a whole. It is true mortgage rates are at their historic lows, but mortgages in the Bay Area may average over $500K. Mortgage payments in the past were affordable with one average income, but loan payments now are not even affordable with twice the median income.

Posted by: moku at November 26, 2008 11:59 AM

Remember that in the state of California, by law, mortgages used for the purchase of homes are non-recourse to the homeowner. So if you have one of those, and think your house may be underwater, refinancing will make the debt recourse. Just another consideration.

Posted by: Edward at December 4, 2008 4:15 PM

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