Market Analysis

January 23rd, 2008 8:43 PM
Market notes:   As most of you know by now, the Federal Reserve cut is Funds Rate by .75% this morning.  In previous rate updates we discussed that the mortgage market had already priced in .75% of cuts.  What is a surprise is that the cuts came in one shot, rather than over 2 months, and in a pre-meeting announcement.  Mortgage rates did inch about 1/8th point lower, but not nearly what one might expect from such a large Fed move.   The real question now is whether there are additional rate cuts coming and, if so, how many.  To the extent that the market prices in additional rate cuts (currently the market is pricing in approximately a 60% chance of another .25% rate cut on Jan 30) we may see rates inch lower.  However, if an additional .25% rate cut does not materialize at the next Fed meeting or if the market begins to discount the likelihood of an additional rate cut we will see the gains from today evaporate.  We continue to be in an environment where the upside potential of better rates (in terms of actual % movement) is far less dramatic than the downside risk (the % movement higher that will occur when we see a correction).  Today's relatively minor improvement is evidence of that.   For those of you wondering what happens if you lock now and rates move down further, we do have a renegotiation policy.  We can renegotiate the rate once to get within .125% of current rates.  For example if rates move to 5.0% with 0 points, we can renegotiate to 5.125% with 0 points.   Our rates are typically at least .125% lower than most of our competitors, so essentially renegotiation enables borrowers to participate in all of the improvement they would have received from another lender even without the "hit" for renegotiating.  Please feel free to email me if you have questions on this policy.
Posted by Matthew Breston on January 23rd, 2008 8:43 PMPost a Comment (0)
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