Mortgage Market Update

Well, we lost a little more on rates yesterday but gained it back this morning.   So, we’re exactly at the same place as we were yesterday morning.  

30 year fixed is at 6.0% with .125 pts on a refi
and 5.75% with 0 pts on a purchase.

15 year fixed is at 5.375% with .125 pts on a refi
and 5.125% with 0 pts on a purchase.

All of those assume a credit score of 740 or higher.

So what’s moving the market so far today?   A couple of things:

• There’s some “movement” in the TARP arena about some of the banks being able to pay off their TARP money.
• The Chrysler/Fiat sale got put on hold while the Supreme Court looks at the details more closely.   This raises uncertainty about both the Chrysler and GM bankruptcies.
• Oil prices are climbing again.   This doesn’t bode well for mortgage rates.
• The Fed Funds Futures market is starting to show the likelihood that the Fed might start raising short term rates within the next 9 to 12 months.

With all of that information, my recommendation remains to lock all loans.   The risk of higher rates due to the rising tide of government borrowing is going to continue to be higher than it would be for rates to drop.

I’ve had a lot of people ask me, “Won’t the Fed just start buying Treasuries and push rates down?”   Well, frankly, here’s my thoughts on that:

• They tried that and spent $500 Billion and it got us lower rates for about 3 months.   But now rates have spiked higher than they were before we started the “buying rates down” effort.
• Past efforts by the government to manipulate the markets have all had increasingly shorter and shorter effects.  If the government does it again, I believe the time that it will work will be shorter and shorter but more and more expensive.

I still believe that we’ll settle down to a “new normal” that will help us establish what rates are going to be going forward.   However, we haven’t gotten to that point yet.   Until it does, I recommend locking all loans.

June 9, 2009