WeeklyBasis 6/09/08: Inflation Up, Employment Down, Rates OK

Fixed rates are up and ARM rates are down relative to my last Marketweek report two weeks ago. The move is about .125% in each respective direction, and jumbo ARMs in particular look good. Broad rate market trading would suggest all rates should be up, but competition among lenders is driving these pricing anomalies that ultimately benefit borrowers. For every lender that tightens rates, another will ease rates. This has been the trend of the last two weeks. Let’s hope it continues, this is where the mortgage banking model can exploit opportunities that the retail bank model cannot – because multiple investors comprise our funding pool, and constantly compete to win our deals.

Rates started rising last week Fed Chairman Ben Bernanke publicly stated for the first time that inflation is a concern. Then rates dropped two days later the economy lost a 49,000 jobs, bringing total 2008 jobs lost to 324,000. Markets were particularly spooked by the unemployment increase of .5% (to 5.5%) from April to May, which put unemployment at its highest level since October 2004. Meanwhile, inflation is a problem with the average nationwide gas prices crossing an all-time high of $4 per gallon.

This week’s market moving reports are Thursday’s Retail Sales and Fridays Consumer Price Index and Consumer Sentiment. These are all-important measures of consumer strength and consumer inflation respectively. As we go forward, rates may rise but lender competition will always allow borrowers to beat the prevailing rate market if they’re getting the right advice. And it’s a given that home buyers and owners won’t even get financing for property they can’t afford. So what’s most important is for home buyers and owners to assess property value and their expectations of that value over their own specific time horizon.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
15 Year: 5.875% (6.025% APR)
5/1 ARM: 5.75% (6.88% APR)

Super-Conforming ($417,001 to $729,750 cap by county) – NO POINTS
30 Year: 6.375% (6.515%)

Jumbo ($650,000 – $1,000,000) – NO POINTS
30 Year: 6.875% (7.025% APR)
7/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 6.0% (6.14% APR)