Category: Rate Update

Rate Update September 16, 2008

Posted on by Evan in Economics & Interest Rates, Rate Update, The Fed

Rates are effectively unchanged this morning.

There is A LOT to talk about this morning as crisis in the financial markets persists. Here is a summary of the major stories we’re falling that are likely to impact the direction of mortgage rates:

→ AIG: The nation’s largest insurer is close to insolvency. Analysts are suggesting that the troubled insurer needs to raise $75 billion in fresh capital to stay afloat. The failure of this firm would be unprecedented because of it’s vast reach & volume of obligations. AIG operates in 130 countries and is a major player in the credit default & life insurance sector. AIG’s failure would likely cause a major disruption in the financial markets which could drag other firms down with it. Although rates may benefit from this news in the near term, in the long run this would be a disaster.

→ Federal Funds Rate: The Fed is scheduled to announce their interest rate policy decision this afternoon. Last week at this time there was a 0% chance that the Fed would alter rates. However, analysts now assume a cut of at least .25% and possibly even .50%. Remember that in and of itself the Fed cutting rates will not directly impact mortgage rates. However, what they say following their announcement can.

→ Consumer Price Index: Finally, the Labor Department released the monthly CPI report. The report came in line with expectations reflecting a 5.4% increase year-over-year. When stripping out volatile food and energy prices year-over-year inflation rose by 2.5%. Although these figures are relatively high compared to the past couple years the announcement did not surprise the markets.

Current Outlook: floating

Rate Update September 15, 2008

Posted on by Evan in Rate Update

Mortgage rates are lower this morning.

In Friday’s ‘rate update’ I referenced that credit worries regarding Lehman Brothers and Merrill Lynch were mounting.

This morning I awoke to an interview on NPR stating that Lehman Brothers was filing for bankruptcy and Merrill Lynch would be avoiding a similar fait by agreeing to be acquired by Bank of America.

Current Outlook: floating

Kudos to Barron’s part II

Posted on by Evan in Credit Crisis, Economics & Interest Rates, General Mortgage Info., Housing & Real Estate

After reading and blogging about one article in Barron’s this weekend I came to another outstading one.  Here is a link.  Nice work Barron’s.

Among the points that I found interesting:

* If Fannie Mae [ticker: FNM] and Freddie Mac [FRE] stopped all of their activity — for a moment, forget about shutting them down and being insolvent — in order to sell off mortgages as normal loans without this guarantee, the interest rate would have to be around 9% or 10%.

* Q: What other negatives do you see?

A: Inflation risk down the line. [The federal government is] going to probably overstimulate and over support in an attempt to stem these deflationary forces. We are looking at a longer-term inflationary force that is pretty substantial. This has been my view for a long time. Interest rates went into a very long decline from the late ’70s and early ’80s until earlier this decade, when first we saw rates bottom out. Then rates went up a couple of times.

Basically, we are getting back down toward those low levels again. The multiyear bottom in interest rates that started around 2002 will probably last into 2009. Then we are going to see the inflationary aftermath of these government policies, and you might be surprised at how high interest rates go.

* Q: How much more pain are we going to feel in the housing market before things start to stabilize?

A: I think we are about half way through. There is high momentum in terms of home-price declines, so it is pretty clear they are going lower. It always looks a lot like the hills on a roller coaster. It starts out with a flattish period. Then it starts to go down, and then it really starts to drop, and we are clearly in that period. That period is going to be with us for about another year before it flattens out and bumps along in 2010.

The S&P/Case-Shiller Index is down a little more than 15% from its peak in 2006, and I’ve believed for some time that the index will have dropped 30% from its peak. That means some markets are going to drop by 50%. That includes Miami, Las Vegas and Phoenix, all of which were fueled by subprime lending. The foreclosure overhang is so big in those areas.

Gas prices expected to rise thanks to Ike

Posted on by Evan in Economics & Interest Rates, General Mortgage Info., Personal Finance

According to this article on CNN Money’s website gas prices are expected to climb back towards the $4/ gallon level.  Althugh there is still a lot of uncertainty about the extent of the damage to oil producing infastructure caused by Hurrican Ike it looks like gas prices will be increasing.  I’ll be filling up my tank today!

Keep in mind that higher energy prices can add inflationary pressure on the economy which is bad fro mortgage rates.

Phil Fisher on causes of inflation

Posted on by Evan in Economics & Interest Rates

In 1958 Phil Fisher wrote an investment classic called, “Common Stocks and Uncommon Profits”.  In the first chapter he wrote a very profound statement regarding the cause of inflation.  This seems to be extremely applicable in today’s economic environment:

“It seems to me that if this whole inflation mechanism is studied carefully it becomes clear that major inflationary spurts arise out of wholesale expansions of credit, which in turn result from large government deficits greatly enlarging the monetary base of the credit system.”- Phil Fisher

Rate Update September 12, 2008

Posted on by Evan in Rate Update

Mortgage rates are unchanged from yesterday but we feel they will move higher in the next couple days.
Mortgage-backed bonds are currently selling off which is a sign mortgage rates will move higher in the coming hours and days.

However, we still feel optimistic that mortgage rates will move lower because a substantial spread sill exists between 30-year mortgage-backed bonds & 30-year treasuries.

Currently, 30-year treasuries yield around 4.24% while mortgage-backed bonds are yielding around 4.93%-5.29% depending on the issue.  Since the government has essentially assumed the obligations of Fannie Mae & Freddie Mac (who guarantee the interest payments on mortgage backed bonds) the credit risk should be similar and therefore the yields should be similar.  This means mortgage rates should come down or treasury yields should rise.  We believe the former will take place with time.

As a reminder, if you haven’t yet read these two new blog postings they contain important information for real estate professionals.

Post #1- What the bailout means for you

Post #2- Mortgage guidelines continue to be tightened

Current Outlook: locking short-term/ floating long-term

Rate Update on MY BIRTHDAY!

Posted on by Evan in Rate Update

Mortgage rates are unchanged from yesterday.

Since falling by approximately .50% earlier in the week mortgage rates appear to have stabilized.

However, there are economic and technical forces that may come into play in the next few days.

Working in favor of mortgage rates are credit worries surrounding Washington Mutual, Lehman Brothers, and now Merrill Lynch. Woes over the financial industry have hurt stocks which is causing investors to seek “safer” bond investments. This additional demand for bonds should favor mortgage rates.

Working against mortgage rates are technical trading patterns. Mortgage backed bonds are currently trading near multi-year highs in prices. This may make it difficult for bonds to rally any further which is what we need to see for rates to move lower.

As a reminder, if you haven’t yet read these two new blog postings they contain important information for real estate professionals.

Post #1- What the bailout means for you

Post #2- Mortgage guidelines continue to be tightened

Current Outlook: neutral short-term, floating long-term

Rate Update September 10, 2008

Posted on by Evan in Economics & Interest Rates, Rate Update

Mortgage rates are essentially unchanged from yesterday although pricing on 30 year fixed loans are modestly worse.

We still believe that over the next few weeks mortgage rates will improve. Now that the federal government has assumed the guarantees of Fannie Mae & Freddie Mac’s mortgage-backed bonds investors will view these securities on par with US treasuries.

30-year treasury bonds are currently yielding 4.19% while 30-year mortgage backed bonds yield between 4.85%-5.15%. We would expect the spread between these yields to converge over the next few weeks. Although, it’s not likely that rates will move in a straight line so we still need to be careful on timing.

Watch today’s you tube video for information on two new blog postings featuring important information that real estate professionals should be aware of.

Post #1- What the bailout means for you

Post #2- Mortgage guidelines continue to be tightened

Current Outlook: neutral short-term, floating long-term

Rate Update September 9, 2008

Posted on by Evan in Rate Update

Mortgage rates have now dropped .50% in two days following the announcement over the weekend that the government would takeover Fannie Mae & Freddie Mac. How long will the rally last?

Most analysts are of the opinion that mortgage rates are likely to continue to improve as foreign investors regain confidence in mortgage backed bonds. However, we don’t expect an improvement to occur in a straight line. There will continue to be oscillations.

In case you missed it yesterday I have created a you tube video and posted it on my blog explaining why this weekend’s announcement is helping mortgage rates.

Current Outlook: neutral short-term, floating long-term

Rate Update September 8, 2008/ Fannie Mae & Freddie Mac bail out

Posted on by Evan in Credit Crisis, Housing & Real Estate, Rate Update


The big news this morning is the government take-over of mortgage giants Fannie Mae & Freddie Mac. The announcement which was leaked on Saturday and made yesterday is likely to become the largest government intervention into the financial markets in US History.

Because of the unprecedented nature of the event it is very difficult to predict the practical implications. However, in the near term watch this morning’s you tube video to understand why the announcement will help mortgage rates in the near term.

Expect a more detailed summary of this announcement in the coming days. For a detailed review of why Fannie Mae and Freddie Mac are so integral into our economy please visit this link.

Current Outlook: neutral