WeeklyBasis 07/03/06: Rate Drop Coming Late-2006, Early-2007

Fixed rates rose about .25% and ARM rates rose about .375% during June because markets were preparing for the 17th consecutive .25% Fed Funds Rate hike on June 29. The Fed came out of that meeting with the same message: “further hikes are data dependent.” The next critical piece of data comes this Friday with the June jobs report, which is a broad indicator of economic prospects and inflation at the wage level. It is the first in a series of data the Fed and markets will be dependent upon before the August 8 Fed meeting. Consider this new study from Standard and Poor’s: After every Fed rate hike campaign since 1971, rates plateau for about 5.5 months then start dropping again. So if we’re nearing the end of the current rate hike cycle that began June 2004, does this mean we’ll see rates drop late-2006, early-2007? Obviously nobody knows for sure, but the research certainly supports it.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.75% (6.89% APR)
10/1 ARM: 6.75% (6.89% APR)
5/1 ARM: 6.625% (6.775% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.875% (7.015% APR)
10/1 ARM 6.875% (7.015% APR)
5/1 ARM: 6.75% (6.9% APR)