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Mortgage Rates: Back In The Dumper Again

Mortgage Rates: Back In The Dumper AgainFor all the talk about the Federal Reserve and raising interest rates the fact is that mortgage rates have been headed downward for some time. As of October 8th the cost of a 30-year, fixed-rate mortgage was 3.76 percent according to Freddie Mac, down significantly from the 4.19 percent we saw a year ago.

That we still have mortgage rates below 4 percent suggests that something is radically wrong with the economy. If things were really going well there would be more demand for capital and thus higher interest levels. That just isn’t the case with mortgage financing, even though existing home sales have been very strong according to the National Association of Realtors.

“Total existing–home sales, which are completed transactions that include single–family homes, townhomes, condominiums and co–ops, fell 4.8 percent to a seasonally adjusted annual rate of 5.31 million in August from a slight downward revision of 5.58 million in July,” said NAR. “Despite last month’s decline, sales have risen year–over–year for 11 consecutive months and are 6.2 percent above a year ago.”

For its part, the Fed has been doing what it always does, sending mixed signals which can be interpreted in any way you like. For example, last week BloombergBusiness had a headline which read, “Fed Officials See 2015 Rate Rise Provided Economy Stays on Track.”


According to Bloomberg, “the Federal Reserve will raise interest rates this year provided slower global growth doesn’t undermine forecasts for higher inflation, said two policy makers, while Fed Vice Chair Stanley Fischer said the word from his counterparts abroad was ‘please do it.’”

So what are we to think about this? Are two policymakers more credible than one vice chair of the Federal Reserve? Should we believe any of them given the fact that the Fed is apparently incapable of making declarative statements?

Mortgage Rates & Fed Promises

You might remember, for example, that the Fed had announced it would raise interest rates once the unemployment level fell below 6.5 percent. And what happened once the magic barrier was breached? Nothing. As the Fed explained, its guidance was outdated.

We now have economists, public policy officials, and soothsayers all predicting when the Fed will raise interest rates, something greatly desired by Wall Street, banks, and those who save. Largely unmentioned in such forecasts is the reality that while the Fed controls interest rates for banks it does not set mortgage rates, rates which may behave very differently based not on regulation but on the supply and demand for capital, a commodity which moves across national borders with electronic speed.

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