Last week, the Federal Reserve announced an attempt to stimulate growth and lower interest rates. The plan, dubbed “Operation Twist”, calls for the Fed to swap short-term bonds for long-term ones in its portfolio. In theory, the “twist” should influence lower interest rates and long-term stability, thus incentivizing investment in riskier securities and boosting investor confidence. Some analysts thought the action did not do enough to combat economic sluggishness, and others argued the Fed should stay on the sidelines. Few seem satisfied.
The market fell off a cliff last Wednesday after the announcement, which had an impact on mortgage interest rates. The drop was caused by an array of concerns about the global economy. Influences include: European debt concerns, a long term negative outlook by the Fed (recovery is years away), and concern about political deadlock in Washington. In response to the nearly 400 point drop in the Dow, investors flocked to US treasury bonds as a safe haven. Commodities fell along with everything else (including gold), suggesting the last (and real) safe haven is government bonds. As a result of demand, bond prices rose and yields fell. The 10-year bond yield fell to 1.72, a new low. The average rate on fixed loans has accordingly fallen, and the 30-year fixed hovered around 4.09 percent at the end of last week.
Today the market rallied. The Dow increased 272 points, and other major indexes also fared well (the S&P 500 and the Nasdaq both enjoyed solid gains). Once again, the market moved on news from Europe… this time on optimism that European leadership is putting together a Tarp-like bailout plan in case of emergency. Expect the same volatility (as we keep warning) as we move forward.
Some local news before we sign off: home sales grew 43 percent in San Luis Obispo County year-over-year in August. Over that same time, median overall home sales price fell 10.5 percent to $340,000.
Central Coast Lending offers the following rates: 30 Year Fixed 3.750% (3.758% APR), 15 Year Fixed 3.250% (3.231% APR), 30 Year Jumbo 3.750% (4.597% APR), 30-Year Fixed FHA 3.750% (4.597% APR), 30 Year Fixed VA 3.750%, (3.737% APR). Make sure to check in with our Facebook for daily rate updates in this volatile market, and our Blog for an in-depth discussion about market news.