Rate & Market Update
Rates dropped for the second week in a row bringing rates close to all time record lows set April and November 2009. The official report on rates isn’t relevant for consumers because it’s published by Freddie Mac a week late (so this week’s rates will be published January 28), but markets are certainly cooperating with home financers even as the Fed starts to wind down their rate support.
The Fed bought $12b net of mortgage bonds this week which is 52% less than their weekly buys through most of 2009. The reason they’re buying fewer mortgage bonds weekly is that they’re at 92% of their $1.25t mortgage bond buying budget laid out last year to help housing. When the Fed (or any other private investor) bids up mortgage bond prices with buying, bond yields (or rates) drop. This program is set to expire March 31 and the Fed has just under $100b left in it’s budget, so this means $10-12b per week in purchases is all markets can expect.
The most likely two things that will happen as the Fed winds down are: rates will rise sharply because no private investors step in to buy new mortgage supply, or the Fed’s program will have it’s intended effect and the private MBS market will gain confidence. But even in scenario two, it’s reasonable to expect that rates will come up from these levels during 2010.
Economic Preview For Next Week
We’ll get another signal on the Fed’s thinking next week when they announce their rate decisions Wednesday following their two-day Federal Open Market Committee meeting. The Senate is also expected to vote next week on whether to confirm Fed chairman Ben Bernanke for a second term—his first term expires January 31.
The election-year debate is furious and Bernanke’s confirmation is in question. It would be unfortunate if short-term election cycle strategy sways Senators to vote out Bernanke while he’s right in the middle of long-term market cycle strategy. Senators and consumers are angry at heat-of-crisis policies but the economic fallout of not doing what the Fed has done would be much worse than existing 10% unemployment.
On top of high Fed drama, we have S&P Case Shiller existing home price data Tuesday, new home sales Wednesday, the first of three 4Q2009 GDP readings Friday, and dozens of quarterly corporate earnings reports.
Amidst all the economic news, one story has gotten lost, which is that Friday, January 29 is the last day for any FHA condo borrower to start a new FHA loan before the February 1 change that requires HUD to approve an entire condo building in order for any unit in that building to be eligible for an FHA loan. For any condo FHA loans registered by Friday, they will still be eligible for a unit-specific approval even if HUD hasn’t approved the building
CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 4.75% (4.87% APR)
FHA 30 Year: 5.0% (5.13% APR)
5/1 ARM: 3.5% (3.63% APR)
SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.0% (5.13% APR)
FHA 30 Year: 5.0% (5.18% APR)
5/1 ARM: 4.5% (4.64% APR)
JUMBO RATES ($625,500 – $3,500,000) – 1 POINT
30 Year: 5.875% to 6.25% (6.02% to 6.37% APR)
5/1 ARM: 5.25% (5.43% APR)