Interest Rates Remain Level

Interest rates for buying a home on the Palos Verdes Peninsula stayed about the same this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“The economic atmosphere is murky, but through the haze the Fed must peer to determine if it is time to lift short-term interest rates for the first time in some nine years.

At present, there are nearly an equal number of arguments to be made to hold interest rates steady as there are to change them. However, although the Fed cannot downplay the vagaries of the markets and economy today, it must necessarily concern itself more with where they expect the economy to be tomorrow and beyond.

Right now, key questions to be asked and answered by the Fed are whether or not keeping short-term interest rates at record lows continues to have the desired impact after so many years… and whether a modestly higher overnight intrabank lending rate will have any detrimental effects on the economy, especially if a change is presented as a soft beginning to what is likely to be a long, slow road to historical normalcy for interest rates. This is a happenstance which may or may not occur in this economic cycle.

Whether now or soon, a small change in the Federal Funds rate is likely to be largely irrelevant. The expected future trajectory of policy matters more at this point, as does the ending of the Fed’s recycling of inbound funds into new Treasury and MBS purchases. The ending of this program will coincide with the start of the tightening cycle and this will likely have the greatest impact on mortgage rates, especially fixed rates.

It’s likely true that there is little to be gained by lifting rates next week, but there is also likely little to be gained by waiting, either. Let’s get the first move out of the way, give markets a clear signal that future changes up or down will depend upon future conditions and even then won’t likely be visited for a number of months yet, and that the present expectation is that “normal” interest rates won’t be seen for a good long while yet.

A choppy week is likely to be in store for us next week. The Fed’s decision to make a change to rates can go either way, so perhaps half of the market is going to be surprised one way or the other. Mortgage rates probably don’t end up much different, but if the Fed does lift rates we could see a little bump in fixed rates — not due to the Fed Funds change, but to the end of the reinvestment program, as a willing buyer of MBS will have stepped out of the market.”

The following are interest rates quotes from American California Financial: