2008-02-03 A Reversal of Rates

Average Rates

30 yr – 5.68% w/ 0.4% in fees. UP from 5.48%. 1 yr ago - 6.34%
15 yr – 5.17% w/ 0.4% in fees. UP from 4.95%. 1 yr ago – 6.06%
5/1 ARM – 5.32% w/ 0.4% in fees. UP from 5.13%. 1 yr ago – 6.04%
1 yr ARM – 5.05% w/ 0.7% in fees. UP from 4.99%. 1 yr ago – 5.54%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 1-31-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: “Daggummit! Wait just a gol darn minute Bubba! The Fed lowered rates AGAIN and mortgage rates went up…how can this be?” Ahhh Grasshopper, you seek answers you already possess.

Overall, average mortgage rates rose about ¼ percent as a result of market activities which included another ½ percent cut to short-term rates by The Federal Reserve and chatter about a $150 billion giveaway, whoops, I mean stimulus package, by the government…all in the name of trying to thwart a recession. Could these actions be considered inflationary? As long time PR readers might already realize, inflation is a root cause of long-term mortgage rates INCREASING.

New Home Sales: December New Home Sales came in at an annualized rate of 604,000 units, down from November and down 40.7% from one year ago. Ouch! This is a simple continuation of the 12-24 month trend of over-supply.

Gross Domestic Product: The GDP is the largest measure of economic activity. The advance guess at 4th quarter GDP came in at a positive 0.6% rate of economic growth, quite a bit lower than the expected 1.2% and significantly lower than the 4.9% for Q3’07. In other words, the economy has come to a screeching halt…at least as measured by this indicator. This should be considered non-inflationary and help mortgage rates stay low.

Unemployment: Continuing with the change in economic growth, a rise in unemployment claims for the week ended 1/26/08. There were 375,000 new claims for benefits, while the 12 month average is 326k.

Personal Income / Jobs / Wages: Personal Income reports for December showed a 0.5% rise in wages. For the last 12 months, personal income is up an inflationary 5.8%. Measured another way, average hourly wages are up 3.8% over the last 12 months. January showed net job losses of 17,000 jobs, however, over the last 12 months, just under a million jobs have been created. The trend is not our friend though. Jobs and employment, in my opinion, are the single biggest factor to our overall economy.

Michigan Housing Stats: Just for the fun of it, the number of units sold in 2007 is down 5.77% from 2006 while the average price is down 6.81% to $152,845. Areas of interest to our readership include:

Traverse City, units down 4.62%, average sales price down 3.42% to $205,990
Ann Arbor, units down 9.27%, average sales price down 4.43% to $247,462
Oakland County, units down 15.49%, average sales price down 12.34% to $203,482
Livingston County, units down 9.76%, average sales price down 10.26% to 206,688
Macomb County, units down 5.63%, average sales price down 13.99% to $136,868


Overall, Fed actions and economic reports demonstrating an increase in inflation helped cause mortgage rates to increase this week. Most notably are The Fed actions, how they are interpreted by the world's financial centers, what it means to the value of the dollar and the ability of the U.S. treasury to continue to attract the huge monies necessary to invest in our treasury debs (i.e. bonds) in order to support our ever-increasing bidget deficit. I'm starting to sound like Ron Paul! A HUGE concern is whether foregin investors will continue to purchase our treasury bonds to support our budget deficits. If they are not attracted to the investment anymore, (and why wouldn't they be?, they've only lost 10% on the dollar and even more so with rates declining...) then rates will need to increase in order to create more demand. That would mean higher mortgage rates.

Next week we will see reports from the manufacturing sector and some unemployment figures. Not a very busy calendar.

Thought of the Week: "There has never been another you. With no effort on your part you were born to be something very special and set apart. What you are going to do in appreciation of that gift is a decision only you can make." -- Dan Zadra