Mortgage rates barely moved during last week’s holiday-shortened week. This week marks the anniversary of that fateful 19 days last year when many of our largest financial institutions were either liquidated (Lehman Brothers), or bailed out with a government capital infusion (B of A, Chase, Citibank, Wells Fargo, etc, etc), or simply taken over by us taxpayers (Fannie Mae, Freddie Mac, AIG, etc.).   It appears that we are slowly pulling ourselves out of that mess but most will agree we have some ways to go.

Compared to a year ago, mortgage rates have improved considerably.  This week a year ago the national average for a 30 year fixed rate mortgage was 6.12%, over a full percentage point above today’s levels of about 4.875% to 5.00%. Jumbo rates were near 7% a year ago on a 30 year fixed and today they sit nearly 1% lower. Still high compared with Conforming rates but lower nonetheless.  Hybrid ARM’s, 5/1 and 7/1 Adjustables continue to act more normally sitting a good .75% to 1.00% lower than fixed rates.  A year ago, they were higher than fixed rates.

The economy continues to show signs of “less worse” activity for the most part and some outright improvement in some areas.  But, in order to sustain an economic recovery over time we need two things to happen.  First labor markets must show improvement. With unemployment at 9.7% and near 17% including “distressed workers” there are too few confident consumers working that will produce the economic activity needed. Secondly, and directly related to employment is Consumer Spending which accounts for 70% of economic growth on a statistical basis – but without jobs and incomes, increasing it is a challenge. Much spending used to be done with borrowed money, but with access to credit reduced, borrowable home equity gone and large holes in retirement assets, consumers have simply hunkered down.  Consumer debt levels fell nearly $22-billion last month which was a huge drop historically.  Consumers continue to “deleverage” and save more and they are likely not done yet.

With a gentle easing in mortgage rates over the past couple of weeks, a few more borrowers have entered the market for a refinance or home purchase. Also, the Homebuyer Tax Credit, which expires on November 30th, has likely increased purchase activity significantly.  Hopefully, we can sustain this level of activity with continued low rates through winter and into spring.  Rates will likely stay pretty low as long as economic activity continues to be lackluster and unemployment stays high. Be prepared however for higher rates once the economy regains its footing and shows signs of steady growth.  The Fed will need to quickly unwind its huge monetary positions in the market to avoid bad inflation and this will result in rates moving significantly higher.

Stay tuned…..

Hugh W. Page, M.B.A.
Senior Mortgage Consultant
(919) 874-7557 Direct
(919) 595-9707 FAX
hpage@fmlending.com
www.fallsofficeloans.com