News You Can Use from Gary Moore

Weekend Market Update

Feb. 20-21, 2010

Red Alert on Rates

Note: Red alert on rates is posted for Realtors, builders and consumers at what we believe are critical market turning points.

Mortgage rates appear fully engaged in a trend higher, having risen about 120 basis points since the lows of 2010 were hit on Feb. 5. That roughly translates to an increase in a 30-year fixed rate of .25%-.375%. We have been in a “5 per cent market,” meaning 30-year fixed rates have been around 5%, more or less. It would not be surprising to find ourselves in a 6 per cent market before long.

After another day of rising rates on Friday and after some of the bad news got flushed out, the market for mortgage backed securities and the often-correlated 10-year Treasury actually closed higher for the day, meaning pressure on rates eased. For most of this week, my phone was buzzing with texted updates of market changes alerting that rates were rising at a gallop.

The move up in rates---and down in price for mortgage-backed securities---was accelerated when Federal Reserve Chairman Ben Bernanke reiterated last week (as reported in our Feb. 13-14 Weekend Market Update) that the Fed would cease buying mortgages in March. That was not unexpected as the Fed had been signaling that for some time. The macro move to the current leg of historically low rates was kicked off in November 2008 when the Fed announced they would step in and buy mortgages.

Unplugging Life Support

Certain market watchers had predicted that the Fed would extend life support to the markets, but now it is clear the Fed’s policy is to slowly withdraw some of the props it had put under the housing market. The Fed also this week announced it was increasing its discount rate, which it charges banks, from .5% to .75%. This is not the Fed funds rate and does not affect prime.

Without Fed buying of loans, rates may have to rise in mortgaged-backeds to lure investors who want a certain return for the risk of buying mortgages. There will be days of backing and filling, and the market will not shoot straight in one direction. There are counter forces still at work to keep rates low---high unemployment, a still weak economy and no sign of inflation. When stocks have bad days, it is still likely that money will move into these securities to keep rates in check. However, it appears the trend---or line of least resistance---is now for mortgage-backeds and Treasuries to drop in price and to increase in rate and yield.

(Rates move opposite the price of the related instrument. For instance, the 10-year Treasury had a range of 50 basis points on Friday, selling off for most of the day and touching the 4% yield range before buying prevailed in late afternoon, and it closed in yield at 3.78%. So, if you were watching CNBC on Friday, they were telling you Treasuries are down/weak and selling off as they have been all week, and then that Treasuries rallied to finish up/strong for the day. The translation for rates, therefore, was higher rates/yields when Treasuries were weak and selling off, and rates/yields got lower as buyers for mortgage-backeds and Treasuries prevailed in late afternoon trading.)

Stock market averages gained for the week as investors took the Fed’s backing off of market stimuli as a sign that the Fed believes the economy has improved and is becoming more able to stand on its own two feet.

Why Buy Now?

April 30 is the last day to have a contract in hand in order to take advantage of the first-time homebuyer credit of up to $8,000 and the move-up buyer credit of $6,500. April 15 is another date to mark on the calendar and not just because income taxes are due---it is the last day FHA case numbers will have the current level of up-front mortgage insurance. The MIP is going from 1.75% to 2.25% after that date.

Remember that I work for a direct lender, a mortgage banker that underwrites and funds its own loans. That keeps the buying process more efficient and better insures your timely closing.

Rising rates ahead also present another reason to buy real estate at this time.

30-Year Conventional Fixed

4.875% $100,000-$417,000


FHA-100% VA

5.25% $100,000-$393,300


100% Guaranteed Rural Housing w/no MI

5.5% $100,000-$417,000

30-Year Jumbo Fixed Rate

6.25% $417,001-$900,000

(Interest-only available-Call me)

Call for free pre-approval and to discover

the best financing for you!

...by Gary Moore

Cell: 615-579-8658 Toll-free fax: 866-321-6513

"The time is always right to do what is right." --Martin Luther King Jr.

Visit my real estate website:

http://www.REALCarte.com


Visit my mortgage website:

http://www.BrentwoodHomeLoan.com

(0% points, 1% origination, subject to program and lock period. Market Update informs on market trends and is not a quote for a unique borrower. Reply)