Simultaneous Bottom For Rates & Home Prices?

Posted by Leslie Bauer on Monday, October 12th, 2009 at 11:05pm.

 

RATE/MARKET UPDATE

Rates dipped this week, entering a seventh week of being either down or even. The dip was caused by tame inflation data and a much weaker than expected jobs report showing the economy shed -263k jobs and hit a 9.8% unemployment rate. But the rate dips came before today’s jobs report and rates actually ticked up slightly in late trading.

A big reason is mortgage bond investors selling and taking some of the week’s profits before $78b in Treasury auctions next Monday, Tuesday, Wednesday and Thursday, half of which are 10yr and 30yr issues which compete with 30yr mortgage bonds for investor dollars. When mortgage bond prices decrease in a selloff, yields (or rates) rise.

CONFORMING LIMITS & TAX CREDITS

The loan limits that make it possible for a market like San Francisco to have conforming loans up to $729,750 are set to expire December 31, and the $8000 tax credit available to homebuyers who close up to November 30.

The obvious questions are starting now: will these continue? And will these benefits be at the same levels?

Nobody has answers yet, both decisions are up to Congress. One thing we do know (from the last WeeklyBasis) is that the Fed will no longer be using the extremely expensive ($1.25 trillion) low-rate stimulus of buying mortgage bonds as of March 30. This Fed action has been highly effective but most agree that their balance sheet should not expand any further. Which makes loan limit and tax credit stimulus for still-tenuous credit and housing markets inexpensive and politically safe options for lawmakers.

In the meantime, this week’s rate and S&P Case Shiller home price data suggest we may be as close to the bottoms of rate and housing markets as we can be at the same time. 

CONFORMING RATES ($200,000 – $417,000) – 1 POINT

30 Year: 4.875%   (4.99% APR)

FHA 30 Year: 4.875% (5.12% APR)

5/1 ARM: 3.75% (3.9% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT

30 Year: 5.0% (5.16% APR)

FHA 30 Year: 5.0% (5.23% APR)

5/1 ARM: 4.0% (4.16% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT

30 Year: 5.625% to 6.0%   (5.78% to 6.275% APR)

10/1 ARM: 6.25%   (6.39% APR)

5/1 ARM: 5.25%   (5.43% APR)

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