As I’ve outlined in my last several posts, we’re expecting to get a “Free Roll” over the next few weeks. There appears to be the opportunity for lower interest rates on the horizon, but the best part seems to be the risk/reward profile of the situation. With rampant deflation, Dept. of the Treasury and Federal Reserve Mortgage Securities Purchasing, and a very timid Equities Market, it sure seems like there’s no way for rates to go but down from here… Right?
I’ve been studying the Financial Markets long enough to know that it’s a good idea to “Expect the unexpected”, so I’m not going out as far on the limb as I feel I can comfortably, but all the signs are pointing to lower rates here. I’m going to stick with my recommendations for the past few weeks, but I’m going to get a little more specific this time…
If you’re currently fixed in with a rate of 6.25% or better and you have no other mortgages or debts that you’re consolidating into a refinance, I think it makes sense to wait until the middle of January before thinking about getting locked in. That being said, the process may take a while with the Holidays, so it would still be a good time to get things started with your refinance application.
If you’ve currently got an adjustable rate or any rate of 6.75% or above, go ahead and get locked in at this level or somewhere near it. You should be able to see a nice savings that you can take to the bank every month and be proud of…
I’m leaving the 6.375%-6.625% people in limbo here. I’m calling this the Gray area. A lot of the math within these recommendations is reliant upon the loan amount. For example, if you have 6.5% w/ a $50,000 loan amount, you shouldn’t do anything. However, if you have a 6.5% w/ a $250,000 loan amount, you probably should. Always run the math before you assume it’s a good idea just because the rates seems better. Of course, contact me directly so we can analyze your specific situation.
Here is how Mortgage Bonds finished trading for the week…
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30 year fixed rates closed for the week at 5.125%. Expect very light volume sessions next week with the Christmas Holiday fast approaching. I don’t think we’ll see much movement. Stay tuned. Much more to come.
They are very serious. As evidenced today by the 75 basis point rate cut when rates were already at 1% or 100 basis points. Not only are short-term rates almost 0%, but it was hinted that 0% would be the case in some circumstances if needed to get things moving again. But wait, that’s not all. The Federal Reserve also stated they will buy another $600 Billion in Mortgage Securities. It’s these securities that determine interest rates. The Treasury has done a great job of using the $200 Billion that it allocated for purchasing Mortgage Securities. They have take rates down from 6.25% to 5.00% as of the end of business on 12/16/2008.
Now, the Federal Reserve will be a buyer of Mortgage Securities in even greater abundance than the Treasury. The goal here is to moot my last post. You’ll notice I’m talking about how we’re all just going to have to be patient. There’s no Government intervention that’s going to fix this over night. Well, apparently the FOMC took that as a challenge. They are now committed to solving this problem in 2009. How silly of me to think that we (Americans) could be patient.
Typically, when rates are cut, it’s a very inflationary occurence and therefore bad for Mortgage Bonds which determine interest rates. However, just look at today’s chart.
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The FNMA 5.0% Mortgage Bonds actually traded up 84 basis points! That’s a HUGE move for one day! This is a really good sign. The fact that the Government is going to continue to buy these bonds means that rates should stay low for a long period of time. It’s even possible that rates could move even lower. Although that’s difficult to say, I would feel pretty comfortable saying that rates should definitely not get any higher for a while.
Stay tuned. More to come. If you don’t own a home…start looking soon.
As you can see from the Chart above, Mortgage Bond prices are the highest they have been all year. Rates are at the lows of 2008 (5% fixed on 30 year loans). If just a little progress can be made from here, we’ll see a big spike up in prices and a sharp spike down in Mortgage Rates.
We need to keep a close eye. When prices are at yearly highs or any type of long-term high, we know there will be a lot of resistence that could shoot the prices down much lower and quickly. However, with the Department of Treasury in there as the big buyer, there’s a chance that we could see rates in the 4’s as soon as next week! I’m betting on that outcome myself. Of course, if you have a short-term perspective, let’s say you’re buying a home in the next few weeks, go ahead and lock in here. If you’re considering a refinance or have a longer time horizon, sit tight and see what happens next.
I know you all appreciate my sarcasm and that’s why I’m so consistent with it. Today will be more of a trading lesson than anything. We have a very classic situation setting up here. Take a look at the chart.
Click on image for full-sized view.
Ok, this is a classic “box play” setup that I’ve written about in months past. What’s happening on this chart? The most important thing to notice is how tight the support and resistence is… Look at how close R1 is to S1. Notice how the Moving Averages are getting bunched up together within that range.
The only thing you can get from this formation is that we’re going to see a break-out one way or the other. We’re going to go substantially higher or substantially lower. We don’t know how long we’ll be trading within the box itself, but we know once we breach it, there’s nothing to keep it from continuing in that direction.
The Trade is this. Put a buy-stop order 15 basis points above R2 and a sell-stop order at $99. We know that if the prices get to either point they are likely to head further in that direction drastically. Each order opposite serves as a stop-loss order for the other. All you do is put the two orders in and just let it ride.
My prediction is for higher bond prices and lower mortgage rates over the next 12-18 months. However, you never know when you’re going to get a bump in the road. I would be prepared for anything these days. Locking if you have a short-term timeframe is the wisest move right now. If you’re not in a hurry, I think waiting is prudent.
Barack Obama was elected as the next President of the United States last night. This very important action for the financial markets gives us a perfect example to illustrate how the markets work.
Of course, everyone has this big idea that Barack Obama is going to be able to turn this country around in the blink of an eye and unfortunately, this will cause huge disappointment in the near future. We’ll get to that in a second.
As of the market close yesterday, The Dow Jones Industrial Average was up 1500 straight points over a 3 day period and Mortgage Bonds were up over 100 basis points in just one day. How come? Everyone was already planning on Obama winning the election. Remember, the markets are always “forward-looking”. They price in tomorrows NEWS today. That’s how it works.
Today, we’re seeing the Dow Jones trade 250 points lower. This is what happens after all the buyers fill their positions and step back for a second. They realize that it’s going to take a significant amount of time before the real impact of the new President can be felt. So, they start scaling out of their positions and send the market lower.
This is good for Mortgage Bonds though. In fact, this is where the majority of that money will go. Just look at today’s Bond Chart. Amazing two-day run. Because of this, I recommend that you LOCK anything that’s anywhere near closing. We’re trading above all 4 major moving averages. This is historically an excellent time to take advantage of lower rates.
Today’s the day we’ve all been waiting for… It’s time to get the evil man Bush out of office. That will fix all of our problems. (Sarcasm)
The Financial Markets will be very light in activity and volume today because of the Election, but will pick up huge steam tomorrow after the results are finalized.
Personally, I think it will be closer than most anticipate, but I do agree with most polls that Obama is likely to win. My prediction is that McCain will get over 200 electoral votes, but that Obama will have the 270 so quickly that it won’t matter by the time he gets there.
A quick look at the Mortgage Bond chart shows we’re up 47 basis points on the day, but with light volume this literally means nothing. We could be up 100 on this volume and we wouldn’t see new rates posted.
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Click HERE for the latest election info. Stay tuned. Much more to come.
The Federal Reserve has once again cut the Federal Funds rate by 0.5% down to 1.0%. This is definitely a good thing for the economy and shouldn’t cause any inflation problems since we’re experiencing such extreme deflation right now.
The Markets as usual acted wildly on the NEWS even though everyone was expecting a 0.5% cut. Mortgage Bonds are at a very key level of support right now and it’s important that they stay above that level if rates are to remain in decent shape. If we go below that level, we could see higher rates for a few weeks or even longer.
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Here are the key stories in the Financial Markets this morning:
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