Market Update

We are now seeing long term bond yields climb to 3.188% (as of May 6th). Yet mortgage rates for 30 years fixed remains at below 5%. This is definitely a sign of the spread narrowing between treasuries and mortgage backed securities. How long can the rates stay at the present levels is anybodies guess.

While I pretend playing amateur economist, I will attempt to guess and give some reasons as to why I think the direction of the rates will go.

Given federal policy has dominated the mortgage rates and strong and forceful controls are in place to ensure rates stay as low and as long as the economy need it, we will continue to see rates between the range of 4.75% to 5.25% for the 30 years fixed mortgages. This will be the range where the agency loans rates will be until Federal policy changes. Obviously, when there are signs of economic recovery, Federal policies will no longer focus solely on keeping rates low. Monetary policies may change to other areas of the economy, and any sign of inflation will cause the rates to go up.

In the news, Mr. Bernanke (Chairman of the Federal Reserve), has commented that he sees no sign of inflation as of now. He also stated that he thinks the economy may see improvements in late 2009. Based on these statements we might see rates remain low for the remainder of the year. In the meantime, it appears that the economy has made some sort of recovery, housing sales are stronger, stock market has rebounded, and unemployment is slowing down. If unemployment is a lagging economic indicator, then we may have seen the worst of the economy.

There are also signs of revival of the mortgage market other than agency loans. I am seeing some very attractive super jumbo rates, albeit the really good rates are the Adjustable mortgages. As of today (May 6th), we have 5/1 ARMs for 3.75% with no points. For those that don’t plan on staying in the house for more than 5 years, these 5/1 ARMS maybe a consideration.