Here are the rates going into the weekend along with some important comments! Although this is a little longer than usual, I highly recommend you take the time to read the information. It explains what Mike Delzer thinks is going to be happening to interest rates over the next 6 months.
CONVENTIONAL
30 Yr 4.75%
15 Yr 4.25
ARMS
3 Yr 3.70%
5 Yr 3.875
7 Yr 4.0
FHA/VA
30 Yr 4.75%
15 Yr 4.375
JUMBO
30 Yr 6.20%
15 Yr 5.85
5 Yr ARM 4.75%
7 Yr ARM 5.40
Market Comments -
As expected, the Fed did not touch interest rates, but the statement was a market mover. The Fed said they are going to draw out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. This tells us a few things – there was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and the statement is a nice way of the Fed saying “no.” They will not be buying more, but what they will do is attempt to provide a smoother transition to normal market conditions. It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher…most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise.
So what does this mean for rates in the short term, and why did the Bond market rally on this news? The rally was more than likely due to the headlines from the media which said that the program was “extended”. The markets reacted positively by thinking that the program would stay in place as is for three more months, which would have included more Fed buying. But the gradual reduction in purchases has to bring us to higher rates. The Fed has been buying about $25B per week, but the new plan to drag out these purchases over a longer period of time, means that they will be reducing both the frequency and amounts of their purchases. This will cause higher levels of volatility, as the Fed will be purchasing less often and less consistently. So we will see a gradual rise in rates over time…and we must be sure that this message gets out to our clients. While we won’t be seeing a sudden jerk higher in rates when the Fed buying program comes to an end, it is clear that rates are now going to be on a gradual rise…and waiting to purchase or refinance will mean a higher interest rate.
In this morning’s economic news, Initial Jobless Claims fell by 21,000 in the latest week to 530,000, which was below expectations of 550,000. While this was a better than expected read, it’s still not exactly good news regarding the overall employment situation. Think about it…530,000 more people applying for unemployment benefits for the very first time really isn’t something to get too excited about.
Existing Home Sales were reported at 5.10 million, less than expectations of 5.35 million and the first decline in five months. However, there was some good news in the report, as inventories of unsold homes fell to an 8.5 month level…the lowest inventory level seen since April 2007. Not a bad talking point to mention to clients, as you also share with them the impact of the Fed’s comments.
New Home Sales were reported at 429,000, slightly lower than expectations of 441,000. The inventory of unsold homes dropped to a 7.3 month supply, down from last month’s 7.5% and the lowest since January 2007. The lower inventory level show signs of improved market conditions, but how much of the improvement is from activity vs. less construction from builders? There is probably some of both.
SOURCE:
Michael Delzer
First Class Financial Services
(720) 904-9048, www.fcfsdenver.com
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