WeeklyBasis 11/25/08: Rates Dive On Fed Help, Holiday Home Shopping After All?

Fixed and ARM rates for loans up to $625k are down 0.625% since last week, and rates on loans from $625k to $1m are down about 0.125%. Rates on loans above $1m are provided based on specific client profiles, and since we’re in the last days of super-conforming to $729k, those quotes are also case-by-case.

Rates dove this morning with another big round of announcements from the Federal Reserve and Treasury Department. Most notably, mortgage bonds are rallying strongly on news that the Fed will buy up to $100b in direct debt of Fannie Mae and Freddie Mac, and buy up to $500b in Fannie, Freddie and Ginnie Mae mortgage bonds. When mortgage bond prices rise in a rally, yields (or rates) drop.

The Fed said this about the program:

This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Housing markets got fresh proof today of just how far prices have corrected with the latest S&P Case Shiller report showing a -16.6% decrease in national home prices from 3Q2007 to 3Q2008, and 21 straight months of declines. This suggests pricing is returning to appropriate levels.

Going into the holidays, many home buyers planned to sit and watch the markets play out instead of writing offers. And many homeowners were just waiting to see when markets might provide an opportunity to change their strategy by refinancing into a longer term loan.

This Fed action and resulting rate movement may be the market catalyst many have been waiting for—and the home price data means that certain cities, neighborhoods and homes are at fair value. People should contact their Realtors and lenders to review their strategies given these new market developments.

The rest of this short holiday week will bring lots more manufacturing, consumer income and jobs data, but as far as market trading goes, all regular economic releases will likely be overshadowed by larger Fed and Treasury policy issues. Friday is the official start of the holiday shopping season and a huge test for consumers who account for two-thirds of GDP. The next WeeklyBasis will report on results.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 5.625% (5.74% APR)
15 Year: 5.5% (5.62% APR)
5/1 ARM: 6.375% (6.49% APR)

Super-Conforming ($417,001 to $625,500 cap by county) – NO POINTS
30 Year: 5.75% (5.86% APR)

Jumbo ($625,500 – $1,000,000) – NO POINTS
30 Year: 7.25% (7.36% APR)
10/1 ARM: 6.40% (6.51% APR)
5/1 ARM: 6.125 % (6.23% APR)