Mortgage Rates in NC Fall 2019

The Fed met last month, and lowered the Fed Funds Rate. That generally gets reported on “the streets” of America, as interest rates in general have gone down.  But they didn’t.  They went UP.  This is one of only a handful of times in my life this has happened.  So, I wanted to take a minute and think about what is moving interest rates right now – and what we should look for with Mortgage Rates in NC between now and the end of the year.

“After a pretty volatile stretch for mortgage rates, where they bounced around a lot from week to week even as they held a pretty tight range, it’s starting to look like we may be starting a period of relatively stable mortgage rates for a time.”

Typically, we’re in the “sweet spot” between Fed meetings, a period where the Fed’s last moves and actions have been digested by the markets, and whatever re-positioning a bank needs to do, as a result of the last Fed “action” is generally in place… except THIS TIME there’s something else going on that is artificially moving mortgage rates.

With the last Fed Meeting decision to lower their target rate, there was ALSO a decision made to begin to add liquidity to the Overall Banking System each day.  This new “Quantitative Easing,” (awkward “balance sheet normalization”) was used during the “Great Recession” for the first time.  But, as our Economy got stronger – we stopped.

In this part of what the Fed is doing, they purchase long term Treasury Bills.  That’s right, the US Government issues Treasury Bills – and the Federal Reserve started purchasing them…. then, they stopped. It was an unprecedented move (both starting and stopping), and it worked pretty well.

The balance sheet normalization process didn’t exactly slow down the economy as some experts feared, but it played a role in an extremely technical, short-term disruption.

Mortgage Rates in NC Fall 2019

On September 16th of this year, a large amount of cash started moving in and out of the Fed through a “Repurchase Agreement” market, commonly referred to as the “Repo Market.”  This is where the Trillions of dollars in the US Government Debt is financed – and in September we weren’t keeping enough money in the banking system to keep that market “account” working correctly.

Which is why at their meeting in October, the Fed announced that it was lowering the Fed Funds target rate, but they were also going to be adding liquidity to the system with “balance sheet normalization.”  THIS practice has been disruptive to the Bond market – and is a leading cause for mortgage rates to remain higher than we would expect.

I’m sure there are other reasons too – and it doesn’t look like many Economist are ready to say why there was a Funding Shortage to begin with.  The other trigger in this is that the Fed is purchasing SHORT term Treasury Bills right now – which leaves our longer term mortgage bonds with higher mortgage rates.

And it’s not Quantitative Easing, like the Fed did it in 2008.

That’s something Fed Chairman Jerome Powell has been vocal about. It’s mostly because the move isn’t meant to push down long-term rates.

“It’s trying to keep the repo market stable by allowing there to be more excess reserves in the system,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management says. “It’s not about going across the yield curve and going into the mortgage market to push down rates and provide stimulus across the spectrum.”

The move, however, might add downward pressure to rates indirectly, Ma says, whether that’s through the mortgage market or to other Treasury markets out on the yield curve. But that just underscores how important the Fed’s messaging is going to be moving forward, he says.

The Fed next meets December 10-11, and that meeting will include new member projections for growth, inflation and monetary policy.  In an unusual move, Chairman Powell met one on one with President Trump no November 18th.  The meeting was with the President and Treasury Secretary Steve Mnuchin to discuss the Economy “broadly.” President Trump said that they spoke about rates and the dollar strength.

The Federal Reserve is not a Political Entity, and is chartered with keeping the Economy strong.  Fed Policy is not to be influenced by political considerations, and Chair Powell has said that current policy is in place to support maximum employment and stable prices.

The Fed in recent weeks has taken pains to make its thoughts as clear as can be, and there is no expectation of a change in policy in December.  But the Fed is not the only force that can move mortgage rates lower.

Other items causing movement in the Mortgage Bond market include the upcoming yes or no vote on Brexit.  Assuming there’s a change in direction on this huge deal in Europe “what sorts of policies and legislation are we going to see from the new administration?”

We learned a couple of weeks ago that manufacturing improved a little in October, at least to a less-poor state. Then we had another Economic Report develop with a local review of manufacturing activity from the Federal Reserve Bank of New York told of pretty steady conditions, although stable at a very low level.  This doesn’t point to a Recession – but those are cyclical, and one is expected in the next 12 to 24 months.

For the past 2 months – and likely for the next 2 months… we’ve been grinding sideways with rates, headed slightly higher.  If Brexit, China Trade Deals, Hong Kong Violence, The Fed’s “Quantitative Easing” or signs of Recession raise their heads – we could see very quick changes.

That’s why we suggest that all of our customers considering a refinance to consolidate debt, pay off student loans, or cash out to “Fixxer Up” their homes stay in touch.  We’ve been reaching out to customers on a very regular basis (we promised to hang out with you until you are debt free), but keep us updated too!

If you have more questions about Mortgage Rates, call Steve and Eleanor Thorne 919 649 5058 – we’d love to connect on Facebook or Instagram too!