RATES as of 9/5/08
9am update - Now there is slight upward pressure on rates as the stock markets have recovered half of their losses on the day. (If the markets were totally predictable everyone would be rich)
original a.m. report: The weaker than expected August employment report is putting further downward pressure on mortgage rates. Long term mortgage securities are at the lowest rates since 6/2/08.
Stocks are down almost 1% today after a terrible day yesterday. Oil remains near $107. In August the U.S. lost 84,000 jobs and the unemployment rate spiked to 6.1% from 5.7%. This is the highest in 5 years and a big increase from the recent low of 4.4%. This report provides further confirmation that the economy is slowing heading into the end of the year. The credit crunch and housing value crisis will be a drag on the economy for several more quarters(more rate outlook analysis below) __________________________
30day lock RATES with NO PPAY PENALTIES , NO POINTS on rates quoted. Lower rates available with points.
Fixed Rates
| Product |
Conforming |
Jumbo |
| 30 year |
6.125% |
8.00% |
| 15 year |
5.625% |
7.625% |
| 20 year |
6.00% |
8.00% |
SUPER CONFORMING 30yrfixed 6.25% 5/1 ARM 6.00%Conforming above $417k to $729,750 in most counties
Adjustable Rate Mortgages (ARMs)
| Product |
Conforming |
Jumbo |
|
monthly ARMs no neg amort. fully indexed |
n/a
|
4.875%
|
| 3/1 |
5.75% |
% |
| 5/1 |
5.75% |
6.125% |
| 7/1 |
6.125% |
6.375% |
| 10/1 |
% |
% |
(all rates subject to rate adds for less than excellent FICO scores, higher LTVs, loan amount adjustments and for Cash out)____________________
RATE OUTLOOK (cont.) Now that the early summer upswing in rates has been reversed there is a chance for rates to move closer to their low rates we saw earlier in the year. This could happen if the markets think that the economy will have a much longer period of very slow growth, than is has been expected. This is because a slow economy would cause the Fed to keep short term rates low for a longer time and a slow economy also wrings inflationary pressure out of the economy. The stock and bond markets clung to the consensus that the "recession" will be short and mild and that the Fed and Congress actions would be successful in reviving the economic growth in the second half of 2008 and unemployment will not get much above 5.5%. That was too optomistic and now the consensus has shifted toward thinking that the economy will not show much growth in the next few quarters and will not have stable growth until late 2009. This change in consensus is reflected in the stock market slide of the last several months. But interest rates are higher than earlier in the year because of inflation concerns. The drop in oil from the early highs of around $145 although with the dollar strengthening in recent weeks are helping the outlook for inflation.
The market volatility we have experienced this year is because there is unusual uncertainty over the outlook for the economy. Normally the consensus has a very high probability of happening. But now there remains good chances of the economy being fine a year from now, as well as a chance that the economy could still be flat a year from now. Furthermore there is a chance that the economy could improve but then dip into a deeper recession next year. The wide range of possiblities for the economy over the next few years scares investors and will cause markets to be volatile until the outlook gets clearer.
If we are lucky enough for rates to dip again they probably will not stay down long!!! The few people who got the great rates Wed. 1/23 a.m. were the borrowers who were in process waiting for the right moment to lock. The same with the great rates on 2/29 or 3/17! There were similar dips in April and again around May 20. While it is unlikely that rates will get back to the extreme lows of early in the year, anything at 6% or better is very good for a fixed rate and should not be passed up. Get ready for the next opportunity! If you do not have a good fixed rate it makes sense for almost everyone to get one now. When the economy improves it could be several years before we see rates this low again especially if inflation increases. With all the uncertainty it makes sense to have your rate locked in for at least another 5 years.
WHAT DRIVES LONG TERM INTEREST RATES?Long term rates including mortgage rates react mostly to the expectation for inflation over the next 10 years so long term rates DO NOT move directly with the short term rate changes. (See Frequently asked Question #1 to see graph of Fed Funds & mortgage rates). The bond market actions most often preceed the Fed as the markets are able to analyze the same data that the Fed sees.
INTERMEDIATE TERM AND SHORT TERM RATES: Short term rates are driven largely by the Fed's actions. Intermediate term rates (3-7 yrs.) are in between and are much more influenced by the Fed's handling of short term interest rates. For the most part the conforming intermediate term loan rates have been not more than .25% below the 30-yr. But the jumbo intermediate term loans are far below the jumbo fixed rates because of lenders willingness to hold the intermediate term loans in their portfolios.
The Prime Rate remains at 5.00%, so prime tied HELOCs have again become very cheap money after a couple of years of being over 8%.
Recent Rate Trend: Conforming mortgage rates steadily improved from mid-June '07 until early December with the 30-yr mortgage falling from 6.75% to 5.75% over this period. In December rates backed up as much as .5% as the markets focused on signs that inflation had increased in late 2007. Rates again dropped bottoming out on January 22 & 23 when the conforming rates hit their historical lows seen at times in 2003 -2005. Rates quickly popped up off these extreme lows. Rates have cycled up and down this year in a very wide range with the 30-yr conforming fixed varying from below 5.5% to 6.5% at the high. In late May to mid-July inflation concerns caused long term mortgage rates to spike to the highest levels since mid Aug 2007. Since peaking in mid July rates, rates held steady for a month before rallying to reverse the early summer spike in rates.
The Fed has cut short term interest rates by 3.25% since 9/07. The Fed is unlikely to cut further. Their next move is likely to be to increase rates but this is very unlikely before the end of the year and could be much later if the credit crunch does not improve. The Fed would prefer to hold rates until the credit crisis is clearly over and the housing market has stabilized. The Fed meets every six weeks with the next meeting 9/16.
Annual core inflation (without energy and food) has seemed to moderate in recent months but is still above the Fed's target of 1.0%-2.0%. Total inflation is now running over 4%. Inflation is unlikely to drop quickly but signs of improvement should help long term interest rates. In 2003 - 2005 when long term mortgage rates were below 6%, inflation was running only about 1%. So we are actually lucky that long term rates are as low as they are given the inflation outlook.
Borrowers with adjustable mortgages tied to Treasury & LIBOR indices and lines of credit tied to prime will be helped by the recent Fed rate cuts. Option ARMs will come down too but not as fast.
Call for information on additional products. Rates are subject to change. Call to confirm current rates. |