JohnsBlog (articles, news, thoughts, advice)

The good days of low rates for mortgages appear to be swiftly coming to an end.  12 months ago all a borrower needed was a pulse and social security number (and in some cases just a pulse) to get a loan.  Today, some lenders seem to be on the brink of requiring blood samples and interviews with potential buyers (ok it may not be THAT bad, but in comparison to the past 12 months, it seems like it!). 

Just as quickly as programs disappeared, I believe we're going to see rates hike skyward over the next couple of months.  In 2 weeks, the Fed is meeting to discuss their monetary policy yet again. Word on the streets (aka from the insiders in the market) is that a .75% cut is expected.  This will bring the prime rate to 5.25% making it a GREAT time to get a home equity loan.  However, with inflation already outside of the Fed's comfort zone, and the US dollar at it's weakest point in years compared to the Euro and the Yen, we're on the brink of inflation becoming a MAJOR concern.  There hasn't been too much talk on the subject recently, as more attention has been placed on the recent economic stimulus package passed by the government, and on the housing and credit collapses of the past year, but I feel there will be a deep impact coming sooner than later.

With the economy being unnaturally stimulated with rate cuts, tax rebates, and liquidity injections, we're seeing slight improvements in the business world.  HOWEVER, it is said that government intervention in the form of rate cuts isn't felt for 6-8 months after the actions are taken.  Rates were first cut in September 07', 6 months ago.  Since then, they've gone down a full 2.25%.  If inflation is already out of the Fed's comfort zone, and the effects of these cuts have yet to be seen, these in ADDITION to the economic stimulus plan could have things get out of control very quickly.  How will bonds react to increased inflation?  VERY NEGATIVELY...what do bonds have an impact on?  Interest rates...bonds go down, rates go up.  2 weeks from now a fed rate cut is expected to weaken bonds a good bit, and over the next few months rate cuts coupled with liquidity injections into the market and an economic stimulus plan could rear its ugly head and drive interest rates much higher than they've been in years.....my advice.....if you're thinking about refinancing, LOCK IN NOW...if you're looking at buying a first home, LOCK IN NOW...if you're on a tight budget and need a good rate to afford housing, LOCK IN NOW.  While home prices are at an all time low, inflated interest rates will make the benefits of buying less for several years, so take advantage while you still can.