Mortgage Market Update December 1^st 2008

Last week was a enormous week for our clients, as mortgage rates dropped over a half a percent. The rate drop was a result of the government announcing a huge investment (Capital infusion) into mortgage backed securities.

As a general role, after a huge rally with mortgagee backed securities (MBS), we often see a pull back in rates. So far this morning we are at levels not seen in quite some time, with little to no pull back.

Will this trend continue? It is quite possible we will see it continue, but we expect to see some kind of pull back by the end of the year followed by another rally next year. During times like these a bird in hand is worth more then two in the bush. (I know this is not as catchy as the Kenny Rodgers song on Wednesday)

When a 30 year mortgage is close to 5%, it is always a good time to lock. I believe that we will have a period of time of very low rates, as low rates will help to get our economy going specifically the housing market, but we might have to wait until next year.

So far this year, we have had rates close to these levels but they only held for a day or two, and then moved considerably higher. Will this happen now?

This morning we are doing well and I have some concerns. First of all, after a huge rally we usually experience a pull back. Secondly, US treasuries are at all time low yields and are due to correct and sell off driving yields higher. Sometimes when this happens, they take MBS with them. So, I would not be surprised to see this happen again.

The week ahead is another action packed week of economic reports.

Monday

1. Construction spending, economists expecting a -0.9% drop.

2. ISM Index, economists expecting a 38.0 reading. This report is a measure of the strength of our manufacturing segment of our economy.

Wednesday

1. Productivity, economists expecting a 0.9% rise after last months rise of 1.1%. This is important as it measures the efficiency of our labor force. The more efficient the better as this helps to reduce wage based inflation.

2. ISM Services Index, economists expecting a 42.6 reading.

Thursday

1. Jobless claims, expecting to come in at 530,000 after last weeks 529,000.

2. Factory Orders, economists expecting a drop of -2.7%.

Friday

1. Nonfarm Payrolls, economists expecting a loss of -300,000 jobs after last months drop of -240,000. This is the single most important report we get monthly as it signals future wage inflation. If we have low unemployment, thus more jobs, employers will have to pay people more money to attract them for employment. This causes payrolls to increase, which is past along to the consumer as higher prices. And as stated many times, our biggest enemy is inflation.

2. Unemployment numbers, economists expecting a 6.8% reading after last months 6.5%.

Message to your clients, If you have been considering refinancing or buying a new home, now is the time to contact your broker and get the ball rolling. These low rates will not last forever!!!! Have a great week.

Cheers,

Ian R Bennett

Mortgage Banker