Impact of Reccent Fed News

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Branch Managers offer their insight as to how the news is affecting the market:

“As much as the interest rates have changed in the last past few weeks, rates are still amazing on all accounts, they could still climb higher so it is best to take advantage now!” Contact a Stanford Mortgage Advisor today to get started www.StanfordLoans.com – Tim Rowen, Branch Manager – El Dorado Hills/Cameron Park, CA

“Higher interest rates will change the returns the investors will receive who buy and own commercial real estate.  That being said, the prices in some product types are still below replacement costs.  In commercial, until we see a “real” (not media hype) increase in jobs, the market will remain flat.  Vacancy is reducing, there is very little new construction.  This means the market will need to stabilize and rental rates will need to increase to the point that developers can afford to build new projects.  Commercial lags behind residential.  Residential is just getting to the point that new home builders believe there is enough buyer strength and appetite that they are willing to take the risk and build homes.  A small spike up in the interest rates now will have a modest affect on home sales. ” – Anthony Scotch, Branch Manager – Citrus Heights, CA

“The recent volatility in the mortgage interest rates highlights the needs for buyers to recognize the difference between the price and cost of buying a home.  Even if the purchase price stayed the same or went down, a slight uptick in interest rates could dramatically increase the cost of the purchase because the monthly payments would be higher.  Sometimes the monthly difference doesn’t seem drastic, but when those payments are added up over years, the difference in cost is astounding.  In this market of appreciating values, the buyers face a double whammy:  higher prices and higher costs where buyers can quickly be priced out of the market.” – Cary Sanders, Branch Manager – Yuba City, CA

“We knew these historically low interest rates would not last forever.  The rates are still phenomenal.” – Shelinda Bryant, Branch Manager – Paradise, CA

“Whenever interest rates rise, buyer’s monthly payments for the same loan amount go up accordingly. For every $1 of increased payment the borrower must have an additional $4 of income to qualify. If the borrower doesn’t have that additional income  they no longer qualify and now cannot buy. This effect is felt more in the entry level market which Fernley is. The affordability index lowers with every tick up of the interest rates definitely affecting our market” – Ed Phillips, Branch Manager – Fernley, CA

“The Feds actions are largely negative to an already negative market. Meaning that the Fed is taking the action of easing QE based on the perception that we have a robust & expanding economy. I believe the latest jobs report reflected a creation of 155,000 jobs. On the surface this may look good however that will not even replace the jobs lost by retirement or the people who just stopped trying to find jobs. Our economy has been largely driven by historically low interest rates made possible by QE. This will surely (as we have already seen) have a adverse effect on all of the markets. The markets are intoxicated with plentiful almost free money.

The good news here is that the markets will eventually need to stand on their own & that will be good for everybody. Additionally there are buyers coming back into the market who have been unable to buy based on bad credit, BK, foreclosure & short sale. These buyers locally as well as nationally have been “chomping at the bit” so to speak to be buyers once more.

Regardless there is still a shortage of and a demand for housing. Interest rates can’t stay at historic lows forever. Refinancing for rate will be greatly affected. It’s time to concentrate on purchases.” – Mike Hilton, Branch Manager – Reno, NV

“Interest rates are raising after hitting an all time low. They are still at an amazing single digit number and it is still an excellent time to buy. With this recent news some buyers are sitting on the fence with a wait and see attitude.  However, entry level buyers are realizing now is the time to buy while they can still enjoy an affordable monthly payment and homes under $225,000 are still getting a lot of activity. Inventory is slowly increasing as sellers realize now is the time to sell.  We have made a fast transition from a serious sellers-market with multiple offers to a more balanced market environment. ” – Mary Cioffi, Branch Manager- Minden, NV

“Of course we would love to see interest rates remain as low as possible~~that being said, they are still amazingly tempting!  Buyers would be foolish not to take advantage of the opportunity. One of the real strengths we are seeing on Nevada’s south east shore is the major influx of California buyers, escaping the tax ramifications being experienced by Californians”.  Our experienced group of agents is staying extremely busy servicing the needs of these well positioned clients” – Pat McCulloch, Branch Manager – South Lake/Zephyr Cove

“Minor rate increases from historic lows may actually move potential buyers to make a buying decision now rather than later when rates are expected to be higher. 4.5% is still a great rate and home prices are still significantly lower than 2007 levels” – Bill Hane, Branch Manager – Incline Village, NV

For pictures of our Branch Managers with their quotes, and more recent news articles on the Fed Interest Rates see our Pinterest page “This Month’s Fed News” by clicking here

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With the Federal Reserve’s continued indecision regarding the fate of bond-buying programs and the likelihood that interest rates will rise, smart money is going to great lengths to lock in long term rates.

Recently, Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee of Congress and one of the main issues at hand was the fate of monetary stimulus that has bolstered the economy, among growing concerns that the Fed will stifle a meaningful recovery. This uncertainty has led to a 50 basis point rise in rates over the past month.

Specifically, Mr. Bernanke was taken to task by Congress over when the Fed will end its bond purchases, which have been instrumental in keeping the economy afloat. Back in mid-December 2012, the Fed revealed that it may be nearer to ending its $85 billion per month economic stimulus in the form of Treasury notes (more commonly known as Quantitative Easing 3 or QE3), which has led to suppressed interest rate levels.

During a meeting of the Federal Open Market Committee, held on Tuesday, December 11 and continued on Wednesday, December 12, 2012, the presentation focused on the potential effects on the U.S. economy, based in part on simulations of a staff macroeconomic model, and for the Federal Reserve’s balance sheet and income of continuing to buy MBS and longer-term Treasury securities over various time frames.

According to the meeting minutes, “In their discussion of the staff presentation, some participants asked about the possible consequences of the alternative purchase programs for the expected path of Federal Reserve remittances to the Treasury Department, and a few indicated the need for additional consideration of the implications of such purchases for the eventual normalization of the stance of monetary policy and the size and composition of the Federal Reserve’s balance sheet.”

At the time, these statements from the Fed caused concern among investors, who are currently benefiting from a low interest rate environment. Apprehension over the fate of interest rates is unlikely to abate following Mr. Bernanke’s recent statements, which indicate a similar sense of ambivalence in respect to the future of rates.

In his opening statement, he mentioned that “in the current economic environment, monetary policy is providing significant benefits. Low real interest rates have helped support spending on durable goods, such as automobiles, and also contributed significantly to the recovery in housing sales, construction, and prices… That said, the Committee is aware that a long period of low interest rates has costs and risks. For example, even as low interest rates have helped create jobs and supported the prices of homes and other assets, savers who rely on interest income from savings accounts or government bonds are receiving very low returns. Another cost, one that we take very seriously, is the possibility that very low interest rates, if maintained too long, could undermine financial stability. For example, investors or portfolio managers dissatisfied with low returns may reach for yield by taking on more credit risk, duration risk, or leverage. The Federal Reserve is working to address financial stability concerns through increased monitoring, a more systemic approach to supervising financial firms, and the ongoing implementation of reforms to make the financial system more resilient.”

With interest rates likely to escalate, borrowers remain eager to lock in loans at today’s low rates. Now is the time for borrowers to take a hard look at what makes the most sense for their bottom line and to recast, unwind, extend or rebind their loans into new 10- to 15-year term loans.

The smart money is going long while the window remains open. Several large lenders have not hit their targets and are still aggressive. Others have hit their goals and are raising spreads.

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