Market Analysis

January 21st, 2008 8:22 PM
The mortgage market was closed today. This week will be very light on economic reports. Interest rates will be far more influenced by activity in the stock market and any major developments announced surrounding an economic stimulous package. A weak stock market should support steady to possibly slightly lower rates. News of an agreement on a stimulous package probably will probably cause long term mortgage rates to increase. There is also the possibility of improvement in mortgage rates due to further downgrades of mortgage insurers Ambac and MBIA who are major players in the municipal and corporate bond markets. Ratings downgrades for either of these bond insurers will cause funds to flow from municipal and corporate bonds into the mortgage bonds issued by Fannie Mae and Freddie Mac. It is important to remember that current market rates are already pricing in .75 points of Fed Rate cuts from Jan to March and already reflect a significant movement of capital from the stock market to the bond market. While it is definately possible that rates could move lower, we continue to recommend to our clients a defensive strategy of locking if you are within 45 days of closing. A bird in the hand is worth two in the bush. When the market turns towards higher rates it will be sudden, with the majority of the damage occurring in a one to three day period. What we have seen in the past is that after the first day of such a correction, borrowers hold out in the hopes that the one day of worsening was a fluke. By the end of the second day of a market correction rates can easily be .375% higher. Again, this is not to say that rates may not move lower. However, if rates do move significantly lower, we can still renegotiate the rate once to get within .125% of lower rates. For example if rates move to 5.0% with 0 points, we can renegotiate to 5.125% with 0 points.
Posted by Matthew Breston on January 21st, 2008 8:22 PMPost a Comment (0)
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