WeeklyBasis 8/5/08: Rates In Trading Range Until Fall
Fixed and ARM rates are about even versus this time last week, but have been up and down by about .25% in each direction. Since then, we’ve had reports on consumer inflation (highest since 1991—rates higher), existing home prices (no increases since August 2006 across 20 U.S. cities—rates choppy), employment (463k jobs lost year to date—rates lower), and also a Fed meeting.
The Fed held steady on the 2% bank-to-bank Fed Funds Rate and 2.25% Fed-to-bank Discount rate today, and said that “tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”
No wonder rate markets are so confused and don’t know which way to trade. Makes us long for the obtuse Greenspan era when the statements were indecipherable. In running the FOMC by consensus and communicating the dissenting views clearly in the statements, Bernanke has created a more transparent Fed and a much more volatile market. Not that all credit crunch volatility can be pinned on the FOMC, but when the markets look to the Fed for direction and get definitive statements that run in both directions, they swing wildly.
The result for people looking to lock loan rates is that we pick rates within a trading range and use weekly and monthly economic data to determine when we’re most likely to be at the bottom of that range. It’s a blend of bond trading and macroeconomic analysis.
After today’s Fed meeting, it seems rates may hold onto their trading range until early Fall, but not without continued volatility. Decreasing oil prices will certainly help rates, and sad to say, so will economic weakness, which also appears likely. This week is light on data, and breaking news will drive most trading. REMINDER: $729,750 super conforming cap expires 12/31/08 and becomes $625,500 on 1/1/09.
Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.5% (6.62% APR)
15 Year: 6.0% (6.14% APR)
5/1 ARM: 6.5% (6.62% APR)
Super-Conforming ($417,001 to $729,750 cap by county) – NO POINTS
30 Year: 6.75% (6.89%)
Jumbo ($729,751 – $1,500,000) – NO POINTS
30 Year: 7.0% (7.025% APR)
7/1 ARM: 6.5% (6.64% APR)
5/1 ARM: 6.25% (6.39% APR)