WeeklyBasis 09/02/08: Lower Oil Means Lower Rates, For Now

Fixed and ARM rates have held onto a .25% drop in the four weeks since I suggested rates could be in a +/–.25% trading range until Fall. We’re now on the Fall side of Labor Day, and although my 9+ month pregnant wife hasn’t had her labor day, this trading range has held. Now it’s time to see if dropping oil prices and rising unemployment pull rates down below this range.

Since hitting $147 a barrel in July, oil has dropped to $109, notably sinking today as Hurricane Gustav was less disruptive to supply than anticipated. This is $2 below the 200-day moving average for oil, and mortgage bonds benefited as lower oil prices relieve inflationary pressure of recent months. If oil drops more, rates will follow, and some estimates call for sub-$100 oil in the coming months. I don’t think that’s realistic, but I think the oil dip will hold at least this week—lucky break for the GOP…and for anyone buying or refinancing a home.

Tomorrow, we have the ADP employment report and Friday we have the Bureau of Labor Statistics non-farm payrolls report. Markets react to both but the former, administered by payroll company ADP, has broadly missed the mark all year. So real rate movement will come from Friday’s BLS report, which calls for 75,000 lost jobs and 5.8% unemployment. If this happens (or worse), mortgage bonds will extend their rally and rates will drop.

As for my wife and I: we’re expecting our son to arrive any day now, so if Weekly Basis goes quiet for 2-3 weeks, it’s because I will be taking some time off.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.5% (6.59% APR)
15 Year: 6.0% (6.11% APR)
5/1 ARM: 6.25% (6.21% APR)

Super-Conforming ($417,001 to $729,750 cap by county) – NO POINTS
30 Year: 6.625% (6.71%)

Jumbo ($729,751 – $1,500,000) – NO POINTS
30 Year: 7.0% (7.025% APR)
7/1 ARM: 6.25% (6.21% APR)
5/1 ARM: 6.0 % (6.12% APR)