THE BASIS POINT

WeeklyBasis 11/19/07: Rates Depend On Holiday Shopping

 

Besides some slight fluctuations, fixed and ARM rates have been steady for 2 weeks at favorably low levels. Rates should remain the same or possibly lower this holiday-shortened trading week. Rates may drop tomorrow because the bond market rallied today. Bonds benefited after Goldman Sachs downgraded Citigroup from a ‘hold’ to a ‘sell’, citing Citigroup may have an additional $4b in subprime write-downs. This tipped off a broader stock selloff as investors sold Citi and anything else with connections to the housing market. When bond prices rise in a rally, bond yields (or rates) drop.The only thing that might prevent rates from improving tomorrow is the release of the October 31 Fed meeting minutes, which may remind investors that the Fed isn’t too keen to cut rates because steadily rising food and gas costs are slowly causing consumer inflation. The most likely scenarios is that stock weakness and the inflation reminder offset each other and rates are even. Then, of course, Friday is the big tip off for the holiday shopping season.

I see August through December (the start of the credit blowup through the shopping season) as the most important short-term economic phase of the past five years, because it’s the first time since the housing boom really caught fire that consumers, who currently comprise 70% of US GDP, will be truly tested. The holiday shopping season will show how consumers make discretionary spending decisions knowing that they can’t just spend as much as they want and lean on increasing home equity to save the budget. That being said, rates are influenced by national economic data, but the consumer and overall housing activity here in the Bay Area seems strong from where I sit. Borrowers that have good jobs, and have been priced out of the market in recent years, are finding good deals. I’m also still doing more super-fast closes (10 and 15 days) than I expected to do in this market — but it’s still working to give buyers leverage when negotiating with sellers.

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)

 

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