Mortgage News

The Markets. Rates rose significantly across the board in the past week, but eased towards the end of the week when higher unemployment claims were released. Freddie Mac announced that for the week ending July 24, 30-year fixed rates averaged 6.63%, up from 6.26% the week before. The average for 15-year fixed rose to 6.18%. The average for one-year adjustables increased to 5.49% and five-year adjustables rose to 6.16%. A year ago 30-year fixed rates were at 6.69%.

"Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve (Fed) will raise short-term rates this year all combined to push mortgage rates higher this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Some of the key drivers to these concerns were consumer prices jumping 1.1 percent (annualized) in June – the largest increase since September 2005 on a year-over-year basis – coupled with consumer prices growing at a 5.0 percent clip (on a year-over-year basis), the strongest since February 1991. Additionally, home prices fell 4.8 percent between May 2007 and 2008, according to the Office of Federal Housing Enterprise Oversight’s monthly house price index. And new construction of one-unit homes fell to 604,000 units (annualized) in June, the slowest pace since January 1991."

Current Indices For Adjustable Rate Mortgages
Updated July 25, 2008

Congress last week passed sweeping legislation that will offer up to $300 billion in assistance to troubled homeowners and throw government support behind mortgage finance giants Fannie Mae and Freddie Mac. The nearly 700-page measure will now go to the President for signature. Last week President Bush withdrew his long-standing veto threat. "The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," White House spokeswoman Dana Perino said. The legislation is the centerpiece of Washington’s efforts to address the nation’s housing meltdown."This is the most important piece of housing legislation in a generation," said Senate Banking Committee Chairman Christopher Dodd, D-Conn. The bill includes the ability for the Federal government to support Fannie Mae and Freddie Mac, tax incentives for first time home buyers, increased permanent loan limits for FHA and more. Source: CNN/Money

An online poll of homeowners in the United States and five European countries found that most believe the value of their home, while not rising this year, will increase within five years. The online Financial Times/Harris Poll found 54% of U.S. respondents joining the majority of respondents from Germany, France, Italy, and Spain in saying that the price of their home will be the same one year from now. Slightly more respondents from Great Britain, 43% vs. 42%, said their home value would remain the same than said it would decline. As for the future, 68% of American homeowners joined 64% of Italian, 57% of Spanish, and 56% of British homeowners who believe their property will increase in value within five years. But 48% of German homeowners said they expect their property value to remain the same. Most respondents were not worried about losing their homes if they could not make their mortgage or rent payments: France, 67%; Germany 62%; U.S., 61%; and Great Britain and Italy, each 55%. In Spain, however, 39% were not concerned, compared with 33% who were somewhat concerned. Source: National Mortgage News

A few weeks ago we discussed the possibility of a bubble with regard to oil prices. While we certainly were not making predictions, we should note that the price of oil has rolled back approximately $20 per barrel in just over one week. Is this the start of the bursting of a bubble or just a market correction? The answer is still to be determined. Any immediate disruption in supplies such as a major storm could send oil right back up. On the other hand, if it appears that consumers are really cutting back, we could have seen the highest point for the year. Only time will tell.

We have another question that is just as important. Why have rates, especially on mortgages, gone up as oil has gone down? Theoretically, decreased pressure upon inflation should be good news for rates. We do have one answer. Having a potential collapse of Freddie Mac and Fannie Mae in news does not put investors in the mood to purchase mortgage securities. Therefore the "spread" between Treasuries and mortgages has widened. Even so, basic rates went up this week as well. What is going on? Certainly economic news released in the past week was not positive and should not have supported an increase in rates. Unemployment claims were up significantly and the housing market continues to be weak. The good news? Help for housing is on the way (see the news section). Could the markets be anticipating a rebound in consumer spending with lower oil prices and housing coming back? Once again, time will tell.