Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 12th, 2008

Lock In While You Can

I guess the best advice I can give right now, in such a volatile market, is if you have a nice interest rate below six percent, lock in!  While we were at five percent just a few weeks ago, we’ve crept up to about 5.75% (5.917% APR).  Still, a great opportunity for a lot of people to get out of their adjustable rate mortgages while they still can!

Remember last week when I mentioned the trouble that Bond insurer MBIA was in?  “MBIA Inc. reported a $2.3 Billion loss it’s fourth quarter.”  Well, Multi-Billionaire investor Warren Buffett announced Tuesday morning that his company Berkshire Hathaway made an offer to reinsure $800 Billion in municipal bonds backed by not only troubled insurer MBIA, but also insurers Ambac and FGIC.  This was huge news and caused the stock market to rally…causing mortgage backed securities (bonds) to fall between 25 and 32 basis points throughout the early afternoon.  Remember when bonds fall, their yields and interest rates move up!  So when I said in last week’s article, “we’ll have to watch this story closely,” I didn’t realize I would be reporting on it so soon.

Finally some welcome news regarding inflation.  This last week Unit Labor Costs, which is an important measure of inflation, increased at an annual rate of 2.1%.  This was better than the 3.5% expected and what’s important to know here is that better productivity makes it cheaper to produce goods…good for inflation. 

Very Interesting News on the Jobless Claims Front

356,000 claims were reported.  Above the 340,000 expected, however, last weeks numbers were increased from 375,000 to 378,000.  Why such alarm?  In 1990 and 2001, we were “formally” in a recession when the month’s average jobless claims numbers averaged 360,000.  We’re averaging 335,000 currently.  However, the last two weeks have averaged 367,000.  I just report the stuff, people!

Of utmost importance was the signing of HR 5140 Title II of the Economic Stimulus Plan was signed by Bush.  A loan originated between July 1, 2007 and December 31, 2008 may be purchased by FannieMae and FreddieMac as long as the loan amount does not exceed the higher of $417,000 OR 125% of what HUD determines to be the area median home price, with a maximum cap of $729,750.  What does that mean…not much for our area, as the median home price (determined by HUD) multiplied by 125% would bring our area’s loan amounts to approximately $420,000.00.  Since nationwide, the conforming loan limit is $417,000.00 there isn’t much room here to save.  However, if you have friends and relatives in areas around Los Angeles or the Bay Area, some of their medium priced homes could bring conforming rates to loan sizes around this $700,000 range.  A significant savings from the higher rates we’ve seen with loans greater than $417,000.00. 

Best Time To Lock This Week

FYI, last week two times the yield on the 10-year treasury was soaring, while mortgage backed securities remained protected by the 25 and 50 day moving average trends.  So, the best day to lock last week would have been Friday, February 8, after we saw a 19 basis point increase in bonds (and therefore, decrease in rates).  Watch stocks this next week.  If they’re doing well and bouncing back expect higher rates.  If they start to fall again…rates will be lower.  Until next week…

This entry was posted on Tuesday, February 12th, 2008 at 6:27 pm and is filed under Interest Rates, Weekly Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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