THE BASIS POINT

WeeklyBasis 12/03/07: Good Week To Lock Rates

Conforming fixed rates on loans up to $417k open this week down about .375%, and Jumbo rates on loans above $417k are about even (because Jumbos are still pricing slightly more to risk than market levels). This is a good time for borrowers to lock rates and capture lows in a week that may be less volatile than previous weeks. Also, mortgage-backed bonds are overbought, trading at 26 month highs, so they are poised for a correction that may push rates up.

Most of this rally in bonds is markets trading on Fed chairman Ben Bernanke’s speech last Thursday where he said that “current stresses in financial markets make the uncertainty surrounding the [economic] outlook even greater than usual.” Bond traders have interpreted this as a sure sign of a .25% cut in the Fed Funds Rate next Tuesday, and seem to be pricing in the possibility of a .5% cut.

Also, it’s important to remember that rates actually rose after the September 18 and October 31 Fed cuts because bond markets were overbought ahead of the meetings. The most significant market data of the week comes Friday with the November jobs and wage growth report. We often see an artificial spike in jobs growth this time of year because of retailers beefing up holiday staffing levels. If the economy adds more than the 75k expected jobs, rates would go higher since the Fed would interpret strong jobs growth as a good sign for the economy.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 5.75% (5.89% APR)
5/1 ARM: 6.125% (6.265% APR)
7/1 ARM: 6.25% (6.39% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.875% (7.015% APR)
5/1 ARM: 6.125% (6.265% APR)
7/1 ARM: 6.25% (6.39% APR)