Are Mortgage Credit Conditions Getting Better?
- Feb 19, 2015
Before 1913, the markets set interest rates, and the economy suffered regular panics. It might be more rational to let a central bank (that is the Fed) be the arbiter of interest rates, but that doesn’t make it any easier for borrowers trying to anticipate an interest rate movement. That’s the situation now for the real estate as it waits (along with just about everyone else) for the Fed to signal some kind of movement on interest rates, which factor into a lot of deals.
On Wednesday, the Federal Open Market Committee released the latest of its minutes, which as usual came after a three-week delay. Seems like the Fed’s dropping hints about not raising interest rates by summer. “Many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions,” the FOMC noted, which might reflect a concern about pulling the trigger too soon, lest the gains made by the economy come unraveled. Rates have been near zero for a long time now, after all, and there’s legitimate concern that investors, employers and consumers would spook under less than ideal circumstances.
And if that wasn’t enough, the FOMC said the following: “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.” Longer than what? That isn’t clear, because it isn’t the Fed’s business to be clear, but the assumption among analysts is “later than June.” Most of the speculation since the beginning of the year has been that June would see a small uptick in rates. Now that speculation is migrating to September, or even later.
The FOMC also reported its thoughts on various parts of the economy, including commercial and residential real estate. ‘”Financing conditions in the commercial real estate sector stayed accommodative… banks reported that standards continued to ease, on net, for CRE lending and noted stronger demand for all CRE loan types. Issuance of commercial mortgage-backed securities continued at a solid pace in November and December,” the minutes noted. Also, it said that residential mortgage credit conditions, while remaining tight, showed some further signs of gradual easing. The price of mortgage credit for qualified borrowers has declined again, with interest rates on 30-year fixed-rate mortgages reaching levels close to their all-time lows.