So Why Did Mortgage Rates Fall?by Tim Manni
What or who can we thank for mortgage rates falling to levels unseen in over 40 years? Simply put, there are a trio of main factors that have allowed 30-year fixed-rates to drop. A recessionary economy, an ease in inflationary pressures, and the Fed’s new-found support for the market have all led to this historic opportunity for borrowers.
We need not explain the harsh realities of the current economy. Tuesday’s Consumer Price Index (CPI) report was just the latest evidence of the price free fall consumers are currently experiencing. Although due in large part to significant and steady declines in energy prices, even the Producer Price Index (PPI) has declined for four months in a row.
The Fed’s announcement in late November to invest up to $100 billion in Fannie and Freddie debt, and up to $500 billion in GSE mortgage-backed securities, provided immediate relief to fixed rates that hasn’t seemed to wear off. After Tuesday’s Federal Open Market Committee (FOMC) meeting, the Fed announced they also plan to evaluate “the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.”
As we said in our article in reaction to Tuesday’s rate cut: “With mortgage markets more fully supported — staring with the takeover of Fannie and Freddie in September, and moves by the Congress, Treasury and Fed — we’re more optimistic about the prospect for housing (and economic) recovery than many other seem to be. More help may also be on the way, and that could help us to turn a corner at a quicker pace than some gloomy forecasts might predict.”