August 11th, 2010

What Good Are (Even) Lower Mortgage Rates?



After the conclusion of the Federal Open Market Committee’s (FOMC) one-day meeting on Tuesday, the Fed announced measures that will help serve to keep mortgage rates low if need be:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

The immediate impact of yesterday’s statement sent 10-year Treasuries even lower, pulling long-term mortgage rates down along with them.

Be sure to read: “What Moves Mortgage Rates

The fact that historically-low mortgage rates have made little waves outside of the refinance market, you may be wondering, “What good are even-lower mortgage rates going to do for our housing market?” After the expiration of the homebuyer tax credit, home sales have been ugly — the demand simply is not there. That’s proves that historically-low mortgage rates alone don’t drive demand, at least at the moment.

About More than Just Rates

However, the Fed’s announcement yesterday has more to do with providing economic stability, if the need arises, than it has to do their perceived need to keep mortgage rates low.

“The Fed has chosen to continue to use its portfolio to support economic growth rather than let it naturally run off,” explains HSH VP Keith Gumbinger. “Although the actual economic boost will likely be small, it does allow the Fed to move more quickly should the economy show more signs of stress.”

What Does the Market Need?

This answer is simple: a lot. The housing market needs more than just low rates to jump-start activity. We have been proponents for weeks now that the White House needs to do something to address the issue of underwater borrowers who can’t refinance because of their negative equity. Beyond that, there’s still unemployment, foreclosures and falling home prices to deal with.

New Type of Fear

CNBC’s Diana Olick spent some time with a Maryland real estate agent the other day who shared a new sense of fear that exists in the homebuying market now more than ever: the fear that, even though they can afford the home, borrowers are uncertain they will be unable to keep the home:

Mortgage rates? “It is a piece of the equation; it is relatively small though in the big picture of things,” [Eric Murtagh of Evers and Company] tells [Olick]. “Issues like stability of employment, cash that the buyers may be pulling out of the stock market in order to pay for the home, and just the insecurity they may have regarding what is the price or the value of the home going to do after they go to settlement? The cumulative of those different issues, I think, have created some timidity for the purchasers out there.”

He also added something a little more startling to hear in this upscale neighborhood: “They are coming in the door with definite interest in buying a home, but there is a concern: Are they going to have the ability to keep the house?”

Buying a home, or thinking about buying a home? What scares you the most?

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6 Responses to “What Good Are (Even) Lower Mortgage Rates?”

  1. Steve Says: August 11th, 2010 at 3:00 pm

    “They are coming in the door with definite interest in buying a home, but there is a concern: Are they going to have the ability to keep the house?”

    Wow. If only prospective purchasers (and the realtors and lenders who love them) had been seriously asking that question in 2006 and 2007!

    You are right that underwater borrowers, unemployment, and foreclosures are having a much greater dampening effect on the home buying market than lower interest rates could ever offset. In the meantime, the lower rates are driving down rates on savings instruments, which is really putting the pinch on retired people who are trying to live off the interest earnings.

    So we have lower rates that are not helping borrowers, and lower rates that are hurting savers. Talk about unintended consequences.

  2. Tim Manni Says: August 11th, 2010 at 4:55 pm


    A knock out comment once again, thanks. I couldn’t have said it any better: “If only prospective purchasers (and the realtors and lenders who love them) had been seriously asking that question in 2006 and 2007!”

    In your opinion, has refi activity run its course yet?


  3. Steve Says: August 12th, 2010 at 11:51 am


    My crystal ball broke years ago. :-)

    No, I don’t think the refinance market has yet run its course. My perception is that there are a lot of people who are inclined to refinance, or ready to refinance, but are waiting for rates to go still lower.

    Whether rates will drift still lower, I don’t pretend to know. I would hazard the guess that, the minute the rates tick up slightly, all those people who are interest-rate timing will jump in. It’s happened before.

  4. Tim Manni Says: August 12th, 2010 at 2:28 pm


    What about all those underwater borrowers who want to refi but can’t? I completely agree: when rates begin to tick upward on a consistent basis, we’ll really see what the refi market looks like.

    Thanks again,

  5. Marc Says: August 13th, 2010 at 10:40 pm

    There just aren’t that many people left that can refinance. How many times can people realistically refinance over say an 18 month period. Those that can refinance already have while millions of borrowers that are underwater wish they could take advantage.

  6. Tim Manni Says: August 16th, 2010 at 10:55 am


    I agree, there aren’t too many people left who can refinance. That’s why I think Washington should do something to help underwater borrowers, refinance. These need to be underwater borrowers who want to stay in their homes, and want to continue to make payments.


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Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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