There has been lots of talk in the last week about rates dropping to 4.5% to get the housing market moving. This is not a "plan" that the Treasury Department has hatched, but a proposal being pushed by the real estate and home building lobbyists. The talk was that the government would consider reducing residential mortgage rates to 4.5% by upping investment in mortgage-backed securities. The plan would be for Fannie Mae and Freddie Mac to buy up more mortgage-backed securities to help drive borrowing costs down.
There are a couple of things that need to be considered before this could happen. The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities, it has yet to use that authority to any degree. The Federal Reserve did announce plans to buy $500 billion in mortgage-backed securities a couple of weeks ago and rates did drop for a couple of hours, then rates finished flat to slightly higher that day.
It remains to be seen whether there is any appetite for this at the Treasury Department. It is unlikely that any corrdinated effort by the government to push 30-year rates to 4.5% or lower will occcur until at least January 20th.
Mortgage rates rarely sustain a dramatic move to lower levels when the government is dropping huge amounts of supply into the the credit markets. Current estimates indicate that Uncle Sam has an immediate borrowing need that is multiples of the previous all-time record. With all the bail out plans of financial institutions and auto makers, that money has to come from somewhere.
Right now rates are great – hovering around 5-5.5%, maybe even 4.875% for a 30 yr mortgage. If you are thinking about buying or refinancing, it is a wonderful time to do so. We never know the bottom for interest rates or home prices until they start to go up. If you wait thinking that the government may push rates lower, you may miss out.
