Which Way Are Mortgage Rates Headed?

Last week's action by the Federal Reserve created optimism in the market but may not have done a lot more. This morning's announcement by the Treasury also sparked a surge of buying on Wall Street. In both instances it looks more like institutions are benefiting; not John Q Public. I haven't spoken with many individuals who are jumping back into the stock market. So the 200+ point surge today must be driven by institutional traders and buyers.

While the talking heads on the finance shows try to sort out the meaning of the federal government actions, there are a few stories that portray a more confusing situation. Here are a few outtakes from an article on cnbc.com titled, "Interest Rates Rising Again Despite Fed Actions" (the full story can be found here.)

"In the aftermath of last Wednesday's announcement ... rates have since crawled up on Thursday and Friday, and show no sign of falling today, leaving the market just 36 basis points lower than before."

"Most investors have concluded the Fed's quantitative easing program is an empty gesture..."

"...the problem is not the quantity of reserves in the system but inability to turn it into loans, and the higher cost and tougher terms on new credit. Simply increasing the monetary base will not solve that problem."

If the traditionally accepted economic theories hold, the lack of readily available mortgage money will continue to exert downward pressure on house prices. The interesting aspect about this vise grip on money is that the correction in prices is boosting the affordability of homes. THAT'S GOOD. We may actually get back to pricing that is sustainable.

DS