Rate Update October 30, 2008

Rates finally stabilized yesterday after moving higher in 5 consecutive days.

As expected the Fed did cut short-term interest rates yesterday by .50%.  This takes the Federal Funds Rate down to 1.00% and the Prime rate to 4.00%, the lowest levels since the “post-9/11 Greenspan Era”.  As a reminder, a cut to short-term interest rates DOES NOT necessarily cause mortgage rates to drop.

Ben Bernanke in his prepared comments following the announcement indicated that he does not expect inflation to be a major concern over the next couple quarters.  This is great news for mortgage rates which is why we are shifting out outlook to a floating position.

The Commerce Department announced today that the US economy contracted in the 3rd quarter lending credence to the idea that we are currently in a recession (a recession is officially defined as two consecutive quarters of negative GDP).

Typically bad news for the economy is good news for interest rates but mortgage rates have yet to move lower on all the gloom news.  From a technical standpoint bond prices lie just above the lows of the year.  Should mortgage backed bond prices move any lower it’s likely we’ll see mortgage rates hit the highs of the year.  However, the appearance of the bond chart leads us to believe that mortgage backed bonds can rally from their current levels to help push rates back down.  We’ll keep our fingers crossed and keep you posted.

Current outlook: floating