Market Update July 7th

Below is a message from Tom Rhea of Pacific Guarantee Mortgage. This update discusses the current interest rates and the factors that could increase or decrease rates in the upcoming week.

Hope everyone had a safe 4th of July holiday! We have seen some improvement to the market in the last several days and we continue to see interest rates for conforming 30 year fixed hold just above 5% and FHA 30 year fixed at 5.375%. We just can’t seem to get enough of a push to move back below the 5% range, although there is word that the Obama administration is working on another stimulus package that could either hurt interest rates or push them back down so we will wait and see.

I wanted to point out a program that could help some of your buyers who are requiring private mortgage insurance. We have access to a product that offers a premium PMI payment. With this program borrowers with a credit score of 740 or greater and a debt ratio of 41% can qualify. What makes this different is that there is a 1% upfront cost which could be paid by the seller and the monthly PMI factor is .11%, in most cases this gives the client a much better option than traditional PMI. For example at purchase of $350,000 with 10% down would give a loan amount of $315,000, with typical PMI the monthly factor would be .52% or $136.50 a month. With the hybrid PMI there would be an upfront amount of $3150 and the monthly factor of .11% or $28.88 per month. All of the PMI coverage has become much harder to get with minimum credit scores for most lenders of 720 or higher and maximum debt ratio’s of 38 -41%.

Here is your Market Report:

Bonds continue to dance just under a thick dual layer of resistance formed by the 50-day Moving Average and recent highs…and Bonds might find it hard to bust through the overhead ceiling and find much improvement today unless Stocks roll over.

After struggling most of the day, Stocks mustered a run higher late yesterday to erase their losses and actually finish the day with slight gains. The Dow finished a modest 44 points higher on the day, while the S&P 500 was higher by 2 points. Overnight, European Stocks continued the climb, after manufacturing orders in Germany reported the highest jump in almost two years. The report helped ease some concerns that a global economic recovery is stagnating.
But even given the positive news from across the pond, Stocks opened lower again this morning, despite a small rebound in the price of Oil and rumors about a potential second economic stimulus package. Vice President Joe Biden commented over the weekend that “the administration miscalculated how bad the jobless problem would be”, prompting speculation that more stimulus might be in the works during 2009. More stimulus would translate into more inflation…and also would mean more Treasury auctions to pay for it, creating even more supply to be sopped up. Many members of Congress admittedly voted to pass the first stimulus package without even reading through it, only to now look back and discover that most of the almost $800B was not earmarked to actually stimulate the economy, but more towards social programs. This will be an important story to watch as it certainly could create a negative impact on Bonds and home loan rates down the road.

With no Economic Reports scheduled for release today, Traders will likely remain cautious and keep their eyes on the initial second-quarter corporate results due out later this week. Also in the news this week is another round of Treasury securities up for auction, totaling $73 Billion. Depending on how the sale is received by the markets, it could put pressure on Bonds, particularly in light of the recent comments on added stimulus.

Bonds are in a tough spot, with both technical indicators and fundamentals working against them, so a Locking approach might normally be more appropriate. However, the picture for Stocks may even be uglier than it is for Bonds – and a sell-off in Stocks would mean that some of that money would find its way into Bonds and potentially push prices higher…or at least support present levels.

If you have any questions on the tax credit, qualifying for a loan or if you have a friend looking for a home give me a call. You can reach me directly at 206.963.0424