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The Craig Report
Mortgage Market News for the week ending December 30, 2008
Compliments of
Craig Goebbel
Loantek Incorporated
(888) 562-6835
PO Box 65149

University Place, WA 98464
License# 510-MB-19434

Events This Week:
GDP Down
Jobless Claims Rose
Home Sales Lower
Manufacturing Mixed

Events Next Week:
Fri 1/2
ISM Manuf.
Mon 1/5
Tues 1/6
Pending Sales
FOMC Minutes
Fri 1/9

Improved Conditions to Begin 2009
Conforming mortgage rates ended 2008 at the lowest levels in decades. One reason is that inflation is not a concern right now due to the current economic weakness and the decline in energy prices. In addition, the Fed has begun to purchase mortgage-backed securities (MBS), increasing the demand. Mortgage rates are generally determined by the price of MBS. On November 25, the Fed announced a plan to purchase as much as $500 billion in MBS, and mortgage rates have dropped significantly since the announcement. Low inflation and Fed purchases of MBS are expected to continue in coming months.
Along with low mortgage rates, homes have reached their best level of affordability in many years, according to the National Association of Home Builders (NAHB). The NAHB index compares the cost of paying for a home, based on average home prices and mortgage rates, to the median household income. Increased affordability allows more people to participate in the housing market, which should boost demand for new and existing homes.
The consensus outlook is that the economy will begin to improve during 2009. In addition, both the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR) expect the housing market to improve next year. The NAR predicts that both the number of existing home sales and home prices will increase in 2009. The combination of a rebounding economy, low mortgage rates, and affordable home prices provides good reason to expect an improved housing market in 2009.
The Dow Dilemma
The stock market rallied Friday and this impacted mortgage rates throughout the first trading day of the new year.  The Dow closing over 9,000 meant money was moving from the security of bonds to stocks.  You can expect this behavior over the coming weeks. Mortgage quotes will change throughout the day, driven by the performance of the Dow.   The best advice you can give your clients is lock when you like it.  Based on the last few weeks, that low quote in the morning is more likely to get worse not better.
Still Lower Rates?
Conventional wisdom says rates are going to drop.  I have attached a graph I prepared last year and have been keeping up-to-date.  The graph tracks the history of the 10-Year Treasury and 30-year fixed rates.  It illustrates the historically wide gap presently between the two which could mean mortgage rates will continue to fall.  I am not so certain.  Right now the Treasury is buying mortgage bonds to help shrink this gap, but it is not happening.  This is due in part to rattled investor confidence in all US based financial instruments.  Whether the Treasury’s efforts are successful remains to be seen.  In my opinion, the desired effect may not happen and if it does it will be temporary at best.  But based on the history of the last ten years, 30-Year Fixed Rates should be at 4.25%.  (The attachment is just the chart.  If you would like the actual data and a detailed narrative analysis just write back and I will forward it.


Also Notable:

  • 3-month Libor rates fell below 1.5% from a recent peak near 5.0%
  • Oil prices fell below $40 per barrel, down from $145 per barrel in July
  • December Consumer Confidence dropped to a record low
  • Fannie Mae and Freddie Mac together own or guarantee nearly half of US mortgages


Average 30 yr fixed rate:
Last week: -0.27%  
This week: +0.14%  
Stocks (weekly):
Dow: 8,600 -100
NASDAQ: 1,550 -25


   Week Ahead
The important Employment report will come out on January 9th. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the condition of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for a loss of 500K jobs in December.
Before that, the ISM Manufacturing index will be released on Friday of this week. The Pending Home Sales index, a leading indicator for the housing market, will come out on Tuesday of next week. The FOMC minutes from the December 16 Fed meeting will also be released that day. This detailed record of the discussion between Fed officials often provides additional insight into the reasoning behind the Fed statement. Factory Orders and Construction Spending are scheduled for next week as well. Mortgage markets will close early on Wednesday and Friday this week, and will be closed on Thursday.



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All The Best,
Craig E. Goebbel
206-601-9824 – Mobile
253-906-5626 – Mobile