Mortgage Rates and the Feds???

[Dammit!]

I keep waiting for mortgage rates to go up as the Feds raise rates but it never happens?

Anyone know the relationship? I know that the Fed rate is the rate when the Feds loan money to banks. But, why isn't it having an effect on mortage rates yet? Is there some kind of delay?

Any help?

[spejic]

Some (many?) of the large lenders, especially GM (you don't think they make money selling cars, do you?) are in a precarious position and are desperate for volume, so they are keeping interest rates low on car, housing and other consumer loans. GM is much more worried about a lowering of their bond status than what the Fed is doing. It will all end badly, of course.

[erikl2]

I keep waiting for mortgage rates to go up as the Feds raise rates but it never happens?

Anyone know the relationship? I know that the Fed rate is the rate when the Feds loan money to banks. But, why isn't it having an effect on mortage rates yet? Is there some kind of delay?

Any help?

As in most things in business and finance, it is far more complicated than that. The relationship between the overnight Fed rate and mortgage rates is not a direct one.

Shorter-term mortgage rates generally reflect the change in Fed rates more than a longer-term mortgage rates. That is a dynamic of the yield curve.

But supply and demand within the mortgage market also move mortgage rates. These forces will typically sort themselves out over the long-term, but in the short-term can keep mortgage rates at their current levels.

[Andy_B]

Here is a real dumb question

Say I never have a balance on my credit card,nor do I intend to ever go for another mortgage in my life and that I have a large cash reserve.

Wouldn't I want the fed to increase the interest rates or would that be moot since likely inflation is also going up?

Andy

[rkim291968]

Here is a real dumb question

Say I never have a balance on my credit card,nor do I intend to ever go for another mortgage in my life and that I have a large cash reserve.

Wouldn't I want the fed to increase the interest rates or would that be moot since likely inflation is also going up?
Andy

See erikl's comment - "As in most things in business and finance, it is far more complicated than that. "

Hiking short-term interest rate is suppose to help cool economy growth and stave off high inflation. But this is not exact science and things can turn out to be different. My cop out answer to your real question is "take the cash reserve and invest in some mix of bonds, mutual funds, real estates, stocks, ...."

[rkim291968]

As in most things in business and finance, it is far more complicated than that. The relationship between the overnight Fed rate and mortgage rates is not a direct one.

I think there is a very little immediate relationship between the two other than people's psychology. Mortgate rate behave in conjunction with fixed long-term bond rate.

[bostonsoccermdl]

See erikl's comment - "As in most things in business and finance, it is far more complicated than that. "

Hiking short-term interest rate is suppose to help cool economy growth and stave off high inflation. But this is not exact science and things can turn out to be different. My cop out answer to your real question is "take the cash reserve and invest in some mix of bonds, mutual funds, real estates, stocks, ...."

hiking short term rates, as you mentioned, is supposed to temper a rising economy and avoid inflation. In theory, by rising interest rates, it makes fixed income investments more attractive, therefore (assumming a fixed $$ amount ot invest) people sell equities and purchase fixed income securities. and the selling causes the stocks, and therefore the stock market to sell off to a healthier level..

Also, higher interest rates make it harder for firms to borrow $$$, slowing there growth..

Of course it is a difficult balancing act...

[Ian Lozada]

Watch the rate on the 10 year note. As it goes, so goes conforming mortgage rates.