Where’s the bottom? His crystal ball says it’s close

Mortgage broker Dennis C. Smith of Stratis Financial in Huntington Beach writes in his blog that he was asked to predict the future recently (probably by some pesky journalist. OK, guilty), but when he peered into his crystal ball, things were a bit murky:

He writes:

“My CB is usually a bit cloudy and this morning is no exception. Let’s take a look at some economic fundamentals and what they may portend for the end of 2008 and into 2009.

“Underlying the commentary is that as a rule what is bad news for the general economy is good news for lower mortgage rates. Interest rates are tied to inflation, or the threat of inflation; if investors fear inflation is coming they will react in a way that causes interest rates to rise. Why? Because they know the Federal Reserve will raise rates to keep inflation at bay … Conversely when the economy is faltering or in recession the Fed will lower rates to stimulate borrowing and investment and generate economic activity.

“With the current economic news one expects lower rates to spur investment and economic activity. One problem here is that the Fed is “all in,” they have lowered their overnight discount rate to 0-0.25%; they cannot lower it any further. So this puts the pressure on the private sector to lower rates and increase borrowing to stimulate investment and growth. Problem is the private sector is not making a lot of loans at the moment-hence GM goes to Washington D.C. for a loan instead of Wall Street. So the economics dictate lower rates, but what we do not know is if the markets will follow economic theory and produce lower rates.

He writes a bit more, then concludes:

“So my Crystal Ball is telling me continued downward pressure on rates until some confidence enters the economy and jobs losses start to slow down, but, BUT (big but here) there is not too much lower rates can go, at some point there is a bottom and my belief is it cannot be too far from where we are today.

“My advice to those looking to buy is not to wait for lower rates to buy. Take advantage of the rates today, buy while you can ….

“My advice to those looking to lower their payments is if the math makes sense with today’s rates then don’t get greedy, take the lower payment and lock in your rate. Also, give serious consideration to paying a half-point or point for an even lower rate …

“Finally be patient! The industry is getting flooded with refinance applications.”

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