FSBO BLOG

Home sales is all about affordability, the lower the cost (price of property + interest paid) of ownership, the more sales there will be.

We have been pounding the table that the bottom is in and interest rates will rise by Spring. Here is more information to back that up:

In an effort to stimulate home sales, the Federal Reserve, in an unprecedented move, has purchased of $1.25 trillion of mortgage securities and plans to stop as soon as March, driving up interest rates on new home loans. Analysts at BNP Paribas SA, Credit Suisse Group AG and JPMorgan Chase & Co. say the extra yield over benchmark rates that investors demand to hold the securities will widen as much as half a percentage point as the Fed stops purchasing. The 11- month-old program has reduced yields, which guides lending rates, by about 1 percentage point, BNP estimates. Along with the Federal Tax credit incentive, which ends April 30th, sales number should keep increasing for the next several months, then hit a ‘brick wall’.

If you are planning to sell in the Spring or Summer, you should move up your marketing schedule to as early as possible. If you are planning to buy, right now is time.

Today, Bloomberg News reported that US Treasuries fell in price, with the gap in yields between 2- and 30-year securities reaching the widest margin since at least 1980, after a $13 billion offering of 30- year bonds drew lower-than-forecast demand. The so-called yield curve touched 372 basis points, the most in at least 29 years, as the bonds drew a yield of 4.52 percent. The so-called yield curve has widened from 191 basis points at the end of 2008.

Lesson #1: The Federal Reserve controls the short term interest and the market place controls the long term interest rates. Todays news is telling us that the market place is anticipating much higher long term interest rates (30 year mortgages fall into this category).

Lesson #2: From 1980 to 1984 long term interest rates sky rocketed, if todays news is the start of a trend, then this could be a repeat.

Lesson #3: Foreign central banks, bought 40.2 percent of today’s auction. They purchased 44 percent at the November sale.

WASHINGTON (AP) — The average interest rate for a 30-year mortgage dropped to a record low of 4.71 percent this week. The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. Add the $8000 tax credit, which also ends next spring and lower home prices, this is it, the bottom is here!