February, 2010:

With the unpredictability of interest rate movements, now is a great time to buy.  Today’s low rates coupled with the Homebuyer Tax Credit will make a difference for many of you who are buying in the $800,000 and below price range.

In late January the Federal Reserve met and confirmed that the Mortgage Backed Securities (MBS) purchase program will end on March 31, 2010. We expect rates to begin moving up as a result of this–what is uncertain is how quickly and how much. Most experts place the rate change value at 100 bps difference, or 1% higher mortgage interest rates. Our best guess at the outlook places rates at the beginning of the year (now) in the low 5′s and ending in high 5′s to low 6′s. However, expect volatile cycles.

The wild card with regard to short term interest rates (which would affect prime rates, and adjustable rate mortgages) is any change in the Fed’s pre-commitment language which, as of their meeting, is currently committed to keeping the Federal Funds Rate exceptionally low for an “extended period.”

We don’t expect the Fed to raise short term rates any time in 2010, but long before the Federal Open Market Committee (FOMC) actually does the deed, it will have to change its language. That could very well happen in 2010, and there is genuine uncertainty over how quickly and strongly the market will anticipate a tightening process.

Keep in mind that rates are currently about 1% lower than they would be if the Fed weren’t buying all those Mortgage Backed Securities. This means when that 1% suppression is no longer in effect, it would cost about $21,000 to buy the rate down by that 1% on a $700k mortgage. When you combine the 1% lower rate with the tax credit, you see that homebuyers stand to gain between $27,500 and $29,000 on a home in the $800,000 or under price range. That’s a big incentive to act now, while both incentives still exist.

Andy Block
Mortgage Advisor & Financial Advisor
Reverse Mortgage Specialist
DRE License 01096311
Opes Advisors, Inc.
400 S. El Camino Real, Ste. 250
Ph: 650.931.0605
San Mateo, CA 94402
www.opesadvisors.com
OPES/ope’s • n./latin for wealth

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