The Veridian Blog

Hi all -

I know, I know, you must be wondering why mortgage rates haven't fallen yet, right? 

In the short-term, there is very little correlation between Fed actions and which direction mortgage rates go.  I have seen them go up and I have seen them go down after rate cuts.  There are simply too many factors that influence mortgage rates that may have nothing to do with the technical aspects of supply and demand of money.  For example, if investors suddenly stop buying mortgage backed securities, or whenever ex-Fed Chair Alan Greenspan opens his mouth.

In the long-term, the Fed Funds Rate and mortgage rates are influenced by many of the same factors - money supply, housing demand, foreign demand of US Treasuries, employment and GDP come to mind as major indicators.  Because of this, we can expect mortgage rates to eventually fall.  When is 'eventually'?  With the current liquidity crisis, it's hard to tell.  Personally, I would be surprised if Jumbo rates do not drop within the next 6 months (by April of 2008). 

My reason is that based on the last rate cut, the Fed is clearly going to be aggressive about avoiding or at least stalling a full-blown housing "depression".  If they do not, and unless I am very, very wrong, housing values in the most affluent areas are going to be hit hard and will send the economy into a tailspin.  But... I have been wrong before...

Next blog - New Veridian products!