THE BASIS POINT

WeeklyBasis 11/05/07: Jumbo Fixed below 7%

Rates open this week down about .125, with the 30yr jumbo fixed notably below 7%. As I reported already, rates were up slightly last week after the Fed cut the bank-to-bank Fed Funds Rate and the Fed-to-bank discount rate by .25% each. Also the economy added 166,000 jobs in October, more than twice what was expected. Normally, rates would spike after a report like this, but sustained weakness in the financial sector actually caused investors to flee to bonds. When bond prices rise on a rally, yields (or rates) drop.This week is slow for economic news, with the biggest impact likely coming Thursday when Fed Chairman Ben Bernanke gives his economic outlook to the Congressional Joint Economic Committee. He shouldn’t change positions since last Wednesday’s FOMC statement, but that statement said there were balanced risks of inflation and economic weakness. It’s hard for markets to do anything with that, so traders will be looking for some indication of a bias one way or the other. Since the Fed under Bernanke is so data driven, we probably won’t see a meaningful rate swing in either direction until consumers (who account for two-thirds of economic output) are tested during the holiday shopping season.

Speaking of holiday shopping, this is the season when a lot of home buyers start to drop out, and when diligent buyers can negotiate hard for price and terms. For buyers that are waiting for a bottom on pricing, I use home sales data to help predict that bottom and then structure an offer price based on that. Let me know if you’d like to discuss this or how to evaluate options going into the holidays.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
5/1 ARM: 5.875% (6.015% APR)
7/1 ARM: 6.125% (6.275% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.875% (7.015% APR)
5/1 ARM: 6.25% (6.39% APR)
7/1 ARM: 6.5% (6.65% APR)