Archive for December, 2009

The Federal Open Market Committee meets today for the last time in 2009. It’s a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent.

But that doesn’t mean mortgage rates won’t change.

See, a major misperception among the public is that the Federal Reserve sets mortgage rates. That’s false. Mortgage rates are based on the price of mortgage-backed bonds.

As an example, since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been within 1 percent of each other at times, and as far apart as 5 percent at others.

If there was a direct relationship between the two, such a spread would be impossible.

The Federal Reserve doesn’t set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates are susceptible to change.

For home buyers and rate shoppers, this week’s Fed meeting takes on added significance.

Over the last half-year, the Fed has used its post-meeting press releases to acknowledge an improving economy in which growth is tempered by job loss and tepid spending. In November, though, net job gains nearly went positive and Retail Sales data proved strong.

If the Fed gets more positive in its message tomorrow, mortgage rates will suffer. This is because Wall Street will use the Fed’s position on the economy as a reason to buy stocks. Some of the cash to fuel those buys will come from the mortgage bond market.

As extra bond supply hits Wall Street, mortgage rates go up.

Similarly, if the Fed’s message goes negative on the economy, investors are expected to sell their stock positions in favor of buying bonds. This makes rates go down.

So, the Federal Reserve doesn’t make mortgage rates, but it does exert an influence on them. In other words, rate shoppers would be wise to watch for the FOMC’s 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly are not.

When it comes to DIY projects, one socket size rarely fits all. So, for light jobs around the house, the 16-in-1 Black & Decker socket wrench can come in handy. Its official name is the ReadyWrench.

The ReadyWrench won’t replace a complete socket set, but because it features the 16 most popular socket sizes, it can simplify your work. The tool fits SAE sizes (5/16 inch, 3/8 inch, 7/16 inch, 1/2 inch, 9/16 inch, 5/8 inch, 11/16 inch, 3/4 inch) and metric sizes, too (8mm, 10mm, 11mm, 13mm, 14mm, 16mm, 17mm, and 19mm).

The head rotates to 45 and 90 degrees so the tool can be used for ratcheting in tight places, when needed.

The ReadyWrench comes with a lifetime warranty and is available at most hardware stores and on Amazon.com for $30. If you’re looking for an inexpensive, suitable gift for a DIY homeowner, the ReadyWrench could be your fit.

If you wonder what mortgage rates and home affordability will look like next year, today’s Retail Sales data may hold your answer.

Versus October, November’s ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.

“Ex-auto” means that motor vehicles and parts are excluded from the data.

Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.

To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher rates for mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.

As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets — including mortgage-backed bonds, the basis for conforming mortgage rates.

Less bond demand leads to higher rates and, therefore, lower levels of home affordability.

Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.

But, if November’s Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.

The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.