Mortgage Market Recap for the Week Ending 12/12/08

First off - I switched to the FNMA 30-year 5% Bond this week from the 5.5% bond due to current pricing.  It’s more relevant for where the mortgage market is at.

Second - the trend line held all week - the 10-Day Moving Average continues to point higher - and mortgage bonds continue to move the same way (remember higher means lower rates).

At this point many homeowners are wondering if refinancing now makes sense when there’s talk of mortgage rates going to 4.5% as a function of the Government becoming a buyer of Fannie, Freddie, and Ginnie Mae Mortgage Backed Securities.

It’s an interesting thought.  Keep this in mind: Buyers of mortgage bonds span the world - it’s an open market.  While the government becoming a major purchaser has increased confidence (some economists have suggested the government put their “full faith and backing” behind mortgage bonds - if this happens, mortgage rates will undoubtedly drop - perhaps even lower than 4.5%) they don’t control the market - or where the interest rate is.  The Federal Reserve controls the Federal Funds Rate - and that has influence on the financial markets.  However, contrary to popular opinion, a move lower with the Federal Funds Rates does not necessarily translate into lower mortgage rates.  Many times it causes mortgage rates to move higher since lowering the cost of money has an inflationary impact on the economy.

So back to lower mortgage rates - and it is worth holding your breath for 4.5%?  I’m telling my clients not to get greedy.  If it makes sense to wait and see because the financials don’t make sense at 5% that’s one thing.  If you look at the candlestick chart below you’d be fooled into believing it’s a calm normal market right now.  It has been for the last little bit - but if you want the true picture of things read my earlier postings (remember the elevator falling in the cheesy action flick?).

My prediction for this coming week: I’m sticking with the 10-day moving average for support - and a continued push higher.  The technicals this past week support this prediction - stay tuned to see if I’m right. Remember daily updates are posted to my twitter account - you can read my twitter feed on this site - and at www.twitter.com/ken_stone.

Thanks for reading! Let me know if I can help you with your mortgage questions and origination needs.  I do mortgages for clients all over the country.

I’ll post again soon!

Ken