The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent. The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months. Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

• The growing ranks of unemployed workers
• The reduction of housing wealth nationally
• Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth. This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

For home buyers and refinancing homeowners, today’s press release was not favorable.

After the Fed’s announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off. Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Source
Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009
http://online.wsj.com/public/resources/documents/info-fedparse0904.html

The Federal Reserve adjourns from its two-day meeting this afternoon. It’s one of 8 scheduled meetings each year for the Federal Open Market Committee.

Like all FOMC get-togethers, the purpose of the meeting is to discuss financial and economic conditions in the U.S., and to make new policy to stimulate or retard economic growth, when necessary.

The Federal Reserve’s main tool for reaching this goal is the Fed Funds Rate.

When the Fed lowers the Fed Funds Rate, growth is stimulated. When the Fed raises it, growth is slowed. The Fed has other tools at its disposal, of course, but the Fed Funds Rate is the most common and most well-known.

Fed meetings are highly anticipated events to markets because the central bank’s can change the course of the U.S. economy with just a statement. As a result, traders tend to get jittery in advance of a Fed press release which often leads to erratic trading patterns.

With the economy continuing to teeter between growth and recession, the Fed has pledged to hold the Fed Funds Rate steady for as long as necessary. Therefore, it won’t be what the Fed does that could move mortgage rates this afternoon; it’ll be what the Fed says.

Post-meeting, the Federal Reserve will publish a press release summarizing the current economic conditions and the biggest longer-term risks that exist. If growth and inflation are identified as threats for late-2009 and 2010, mortgage rates will rise. This is because inflation is linked to higher mortgage rates.

The Fed’s press release hits the wires at 2:15 PM ET today. If you’re the cautious type, consider locking your mortgage rate prior to the release.

Monday, mortgage markets improved with news of new Swine Flu cases.

It’s a classic example of Safe Haven buying and today’s rate shoppers will see the benefits.

Mortgage rates improved about 0.125 percent Monday.

It’s not an official term, but “Safe Haven buying” describes the trading patterns in which large numbers of investors move money away from risky investments and toward safer ones. As a general rule in Safe Haven buying, stocks sell off and bonds make gains, including mortgage-backed bonds.

Fears that a global Swine Flu outbreak would slow the global recovery is a major reason why mortgage rates improved Monday.

Dumping risk is a common reaction on Wall Street when unexpected events occur. Because the future is uncertain, traders prefer to play it safe. Hence the jargon-like term, “Safe Haven buying”.

If nothing else, Monday’s mortgage rate action reminds us that the biggest influences on the market are often not the events we can prepare for. It’s the events we never saw coming.

This morning, with known Swine Flu cases spreading to Asia and a Phase 4 Alert from the World Health Organization, Safe Haven buying is continuing. However, with the Federal Reserve meeting today and tomorrow, markets could be ripe for a correction.

(Image courtesy: Niman and Google Maps)

The days of rock-bottom housing prices may be reaching an end.

According to the National Association of REALTORS, the number of Existing Home Sales fell by a modest 140,000 units last month. It’s the fifth straight month in which home sales straddled the 4.5 million mark.

The national housing inventory is down 900,000 from its July 2008 peak.

These are two encouraging signs.

Meanwhile, in a separate report, the Commerce Department said the supply of newly-built homes for sale is at a 7-year low. This, too, is a positive signal for housing.

Home values are based on supply and demand. If the number of homes for sales falls while the number of buyers stays constant, home prices will rise. This is because the same number of buyers are competing for fewer properties. It’s basic economics and that may be what we’re seeing right now in the marketplace.

But the balance could shift further. Remember: the March housing data doesn’t account for first-time home buyers that used the $8,000 First-Time Homebuyer Tax Credit. Because the stimulus package didn’t pass until February, buyers on the program likely hadn’t closed on their respective homes before March data was released.

There’s a big piece of the demand side of the equation unaccounted for, in other words, and if you’re an active home buyer now, you’re probably hearing a lot about multiple-offer situations and seeing this action first-hand.

Data from the housing market hasn’t been outstanding, but it’s definitely not looking worse. Sales levels, inventories and home prices appear to be leveling off nationally and the number of active seems to rising.

Overall, it points to higher home values ahead.