Thursday, May 22, 2008

Mortgage rates are sanguine for now

On April 30 the Federal Reserve cut the target rate and according to the FOMC statement omitted critical parts in the verbatim which led some to suggest the possibility of a pause in this rate cutting cycle. The minutes to the meeting released on May 21 revealed that "most members viewed the decision to reduce interest rates as a close call". In the meantime several Fed speakers have said that they remain concerned with inflation. Futures trading in Fed Funds interest rates show that investors anticipate no more cuts and have increased the chances of a rate hike by around 50 percent as early as November. All this is putting pressure on the mortgage market but this has yet to show up in the appropriate mortgages rates. As the diagram shows 5/1 ARM, 5/1 jumbo ARM and national 30 yr fixed mtg rates have proven to be sanguine. After a dramatic hike in March they are now down to a more tolerable level, in line with the general easing of several credit spreads.
click to enlarge

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