The Federal Reserve's pledge on Tuesday afternoon to keep short-term rates low through 2013 should sustain relatively favorable mortgage market conditions for quite some time.
“We've already seen mortgage rates come down. I think they're going to come down some more and importantly I think they're going to stay low for a long time,” DB Advisors global chief economist Josh Feinman told National Mortgage News. “People were not expecting the Fed to raise rates any time in the foreseeable future -- but this is two years at least.”
Thirty-year fixed rate mortgage rates should stay low, he said, noting that only the very long end of the Treasury curve could get steeper but this should not affect mortgages.
Lenders are already telling NMN that application volumes are rising. “Our daily app volume is up 60% over July,” said Jon Whittington, president of American Savings Bank Home Loans. “Purchase and refi apps are trending the same proportionally with both finance types up 60%. Interestingly we're seeing a very high percentage of cash-out refinances.”
American Savings is based in Honolulu, one of the better housing markets in the U.S.
Of course, rate movements are subject to change. “The downside is nobody knows what things are going to look like two years from now,” Feinman said. “This is a long time to commit, so that's the danger and there were dissents on this for that reason. But I think it underscores that the Fed felt that it needed to do something dramatic and they are running out of bullets."
At press time the yield on the benchmark 10-year Treasury had fallen to yet another new low: 2.18%.
The DB economist noted that the Fed could reverse course if economic conditions change but the new statement gives it less flexibility to do that.
--Paul Muolo also contributed to this report
