You'll Get The Best Mortgage Rates If You Watch Certain Patterns

When it comes to mortgage rates, sometimes it's better to "act now".

On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.

On Wednesday, however, the markets had second thoughts.

After considering the long-term implications of a near-zero percent Fed Funds Rate, and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.

As a result, mortgage markets unwound.

At first, the exit was slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.

In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.

Going forward, mortgage rates may fall, or they may not. We can't possibly know. But, we've now seen the pattern 3 times -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.

Sleeping on it for even one night may end up costing you dearly.

(Image courtesy: The New York Times)

How November's 533,000 Jobs Lost May Ultimately Help Mortgage Rates Improve

According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.

It's the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans -- both employed and unemployed.

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed's two-day meeting starting December 15. Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead "floating" interest rates lower on home equity credit lines and other revolving debt.

And, this talk from the Fed comes on the heels of its $500 billion pledge to buy mortgage-backed bonds. That demand-shifting move was announced last week and drove mortgage rates lower. It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for "urgent" action. It's a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today's job data is a non-event of sorts for active home buyers. Mortgage markets expected a poor reading and they got it. Normally, data like this would cause mortgage rates to spike, but this is not a normal market.

Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today