30 yr – 6.04% w/ 0.6% in fees. UP from 5.72%. 1 yr ago - 6.22%
15 yr – 5.64% w/ 0.5% in fees. UP from 5.25%. 1 yr ago – 5.97%
5/1 ARM – 5.37% w/ 0.5% in fees. UP from 5.19%. 1 yr ago – 5.96%
1 yr ARM – 4.98% w/ 0.6% in fees. DOWN from 5.00%. 1 yr ago – 5.49%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 2-21-08)
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: “What THE FED does has very little impact on long term mortgage rates.” Have you heard that quote before? Long time Pinnacle Report readers have certainly learned that lesson. This is evidenced by the ¼ percent increase in long term mortgage rates (15 and 30 yr). The Fed has direct impact on the shortest of short-term interest rates; namely the overnight lending rates between banks. Fed actions have more influence on short-term rates and is evidenced by the lowering in this week’s average 1 yr ARM.
The spread between long and short term mortgage rates is beginning to widen. This week’s economic data showed higher inflation at the consumer level and a mixed bag on housing.
Inflation: Consumer prices rose 0.4% in January, which was in line with expectations. Measured by this item, prices are up 4.4% over the last 12 months. Inflationary reports are not good for bond holders. Mortgages essentially become bonds as they go thru their metamorphosis in the financial world. This had an impact and helped mortgage rates increase this week.
Housing: Building permits for new homes in January came in at 1.048m units. This was slightly higher than expected, but lower from December. Over the last 12 months, permits for hew housing starts are down 33.1%. This is nothing new in the market and had no real impact on mortgage rates.
Housing II: Housing Starts , as compared to just the permitting process, rose from 1.004m in December to 1.012 in January. This was lower than expected and over the last 12 months new home starts are down 27.9%. Again, not really a big surprise.
Unemployment: Weekly unemployment claims for the week ending 2/16/08 came it at 349,000, right in line with expectations and slightly lower than the week before. Not much impact on rates.
Leading Economic Indicators: Supposedly a precursor to economic levels 6 months in advance, many experts now feel it is a better gauge for today. The expected rate of growth was -0.1% for January. This had no real impact on mortgage rates either.
The Bottom Line: The economy is slowing and The Fed is lowering rates in an effort to “keep us out of a recession”. Many economists believe the US economy is already in a recession. The Fed is caught between lowering rates in an effort to spur on business borrowing and spending while at the same time trying not to further devalue the dollar. My observations suggest that The Fed will ALWAYS choose the devaluation of the dollar.
Next week reports on housing, inflation, GDP and incomes will be released to the markets. Odds are rates will increase a few hundredths of a percent and all will be right with the world.
Longer term view: Look for the Fed to continue to lower rates in the near future. This will likely result in the dollar continuing to devalue and mortgage rates to increase slightly over the next 6 months. In real estate, it’s a buyers market and rates are great…go get a good deal if you need some real estate. Otherwise, hang on to your hats, buy some gold and let’s hope companies are profitable so that people can keep their jobs…the linchpin of the economy, JOBS.
Thought of the Week: "Don’t worry when you are not recognized, but strive to be worthy of recognition.” - Abe Lincoln
