| Falling Dollar Saving Mortgage Market, expert says
Treasury bill rates have fallen from 5 percent to an astonishingly low 3 percent, while 10-year Treasury rates (to which 30-year mortgages are indexed) have declined from 5.2 percent to 4 percent, with most of the decline happening in the last month.McDonald's thesis is that the recent plunge in interest rates has, almost overnight, changed everything. "The doomsday scenario painted by Wall Street over subprime mortgages and housing is suddenly way overblown."The Fed controls short-term interest rates; longer-term rates are at the mercy of foreign investors who are the primary buyers of U.S. Treasury bonds and bills. Japan and China combined own close to 60 percent of the US Treasury debt."The lower U.S. Dollar finally brought in foreign investors looking for bargains," says Mr. McDonald. "The worry that the Dollar could free-fall does not seem to worry foreign investors today.
Fed's rate cuts ignite a rush to refinance
A positive note in the chorus of bad economic news sounds loudly, like a call to arms. Or, as happened after the Federal Reserve dropped short-term interest rates three-quarters of a percentage point Tuesday, a race to refinance. The refinancing frenzy began right after the Fed's announcement, local brokers and bankers reported. The 10-year Treasury bond rates on which fixed mortgages are based also fell, and interest rates for 30-year loans plunged as far as 5.125 percent, the lowest level since spring 2004. On Jan. 1, the 30-year fixed rate averaged 6.07 percent; it has ranged between 6 percent and 6.5 percent for two years. Though the number of refinancing applications will not be available until Wednesday from the Mortgage Bankers Association, newspaper and television accounts from Bangor, Maine, to Los Angeles described a boom in activity.
Fed's rate cut can't pull home builder stocks out of free fall
Nobody really thought a half-point cut in the short-term rate would bail out the housing or mortgage markets. The move was designed mainly to prevent housing woes from spreading throughout the broader economy. Since the rate slice, a number of other things have happened that affect home builders - all bad. For starters, long-term interest rates have edged up, mainly because investors fear the Fed's short-term rate cut could stimulate inflation. Because fixed-rate mortgages tend to follow long-term interest rates, an increase in long-term rates usually hurts home builders. Last week, a number of the largest builders reported abysmal earnings. Industry giant Lennar reported the biggest quarterly loss in its history - $3.25 per share versus a $1.30 per share profit in the same period last year.
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