Tuesday, November 29, 2005

Rate hike ending?

Who knows what the Fed has in mind, but average interest rates actually DECLINED last week!

A Hint That Fed's Rate Increases May End Soon(November 23, 2005) -- Newly released minutes from the Federal Reserve's Nov. 1 meeting indicate that central bank officials soon may strike certain language from advance guidance about future rate increases. Though they do not indicate when they will cease short-term rate hikes, the minutes do hint that Fed policymakers may no longer suggest that rates will be increased at a "measured" pace. Nevertheless, concerns about inflation lead investors and analysts to believe that another two or three rate hikes are on the horizon. Ben Bernanke, who is slated to take over for Alan Greenspan as Fed chairman at the end of January, is expected to increase rates at least once after assuming the post, mainly to show that he is as committed as Greenspan to combating inflation. Source: New York Times (11/23/05); Andrews, Edmund L.

An opportunity for future investors?

Interest only loans might mean that as rates rise, there will be more people looking or needing to sell. See the below report on interest only loans in DC!

D.C. Has Most Interest-Only Home Loans(November 23, 2005) -- LoanPerformance reports that Washington, D.C., ranks first in the nation for interest-only mortgages, which accounted for 52.3 percent of home loans written in the District during the first six months of the year. Interest-only products made up 43.8 percent of all loans in Virginia, 43.7 percent in Colorado, 43.1 percent in Arizona, and 41.8 percent in California over the same period. Also placing in the top 20 were Maryland, Nevada, Florida, Hawaii, the Carolinas, and Massachusetts. Nationwide, 28.5 percent of home loans made between January and June included interest-only terms. The metropolitan areas with the largest percentages of interest-only loans were Santa Cruz-Watsonville, Calif.; San Francisco; and Washington, D.C. Though some experts are worried that the popularity of interest-only financing puts the nation's housing markets at risk, Freddie Mac COO Eugene McQuade says interest-only and negative amortization products presently boast higher credit quality than 15- and 30-year fixed-rate mortgages. According to Wells Fargo's Second Annual Survey of American Homeowners, 73 percent of respondents with interest-only mortgages make principal and interest payments part of the time. Nearly one-quarter of those polled, meanwhile, said they pay both the principal and the interest all of the time. Source: Inman News Features (11/22/05)