Realty Check

Fed Knows: Mortgage Rates Mean Little to Housing Today


Are you kidding?

What do you mean mortgage rates mean nothing to housing?

Well, we've been sitting around record lows on the 30-year fixed for many many months now, and while the refinance market has certainly seen a boost, the home purchase market has not.

A full 78 percent of residential mortgage applications today are for refis, not purchases. Would things be worse if rates were higher? Of course. I'm just saying they wouldn't be much better if rates dropped another 40 or even 50 basis points.

Today the Fed Funds rate remained unchanged, which doesn't tie directly to the 30-year fixed, but in the additional comments, Fed governors said they would put proceeds from maturing mortgage bonds into treasury debt.

So much for an exit strategy.

"To help support the economic recovery in a context of price stability, the committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities," the Fed said in a statement.

The Vanguard Group's Ken Volpert said he reads in that: "Mortgage rates are low and being lower is not going to make a difference."

Capital Growth Management's Ken Heebner adds of the Fed and mortgage rates, "They don't need to drive them lower. You could see mortgages go lower but I think this action reinforces their commitment to drive stimulus."

But I guess I didn't need all these learned Wall Street types to tell me that, as I spent the morning with real estate agent Eric Murtagh of Evers and Company, as he prepared for a Realtor's open house on a Chevy Chase, Maryland property that just dropped in price by more than $200,000.

Mortgage rates? "It is a piece of the equation; it is relatively small though in the big picture of things," he tells me. "Issues like stability of employment, cash that the buyers may be pulling out of the stock market in order to pay for the home, and just the insecurity they may have regarding what is the price or the value of the home going to do after they go to settlement? The cumulative of those different issues, I think, have created some timidity for the purchasers out there."

He also added something a little more startling to hear in this upscale neighborhood: "They are coming in the door with definite interest in buying a home, but there is a concern: Are they going to have the ability to keep the house?"

Questions?  Comments?