Mortgage Market Comment - Week of December 1st, 2008

Mortgage bond prices rose last week pushing mortgage interest rates lower!.  Trading remained volatile as trading volume was thin amid the shortened holiday trading sessions.  Mortgage bonds rallied nicely following the announcement that the Treasury and the Federal Reserve Board will spend $800 billion to help the ailing credit markets (details in article below).

For the week, interest rates on government and conventional loans fell by about 1.625 discount points.

The employment report Friday will be the most important data this week.  Look for any additional moves by the Federal Reserve Board, the US Treasury, and legislative developments to also result in mortgage interest rate movements.

$800 Billion - Help for the ailing credit markets

The US Government announced a new $800 billion spending plan to stabilize home prices and help lower mortgage interest rates.  While rates on Treasury bonds have moved to historic lows over the past few weeks (low mortgage rates mean that buyers can afford to buy more expensive homes), rates on mortgage bonds have remained behind.  The housing market remains in peril and the demand for mortgage bonds is not as strong as the demand for Treasury bonds.  Fortunately, the Federal Reserve announced it would purchase $500 billion of mortgage-backed securities and another $100 billion of debt from Ginnie Mae, Fannie Mae, and Freddie Mac.  This spending is an effort to improve the credit markets so businesses and consumers can get loans.  Treasury Secretary Henry Paulson said, "This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy."  The Federal Reserve will also make $200 billion available to help with the consumer debt market.  The initial reaction to the plan was very favorable for mortgage interest rates.  The financial markets were relieved that something was done to address the housing industry.

Remember that, despite the recent improvements, the housing sector still remains troubled.  It is very likely that still more efforts will be necessary to resolve the credit freeze.  Expect more market volatility.

If you are interested in buying and need help with financing, give me a call.  I know several lenders that offer competitive rates!