Illinois Mortgage Rates Weekly Update
11th October 2008
Welcome to Illinois Mortgage Rates and News week in review for the week ending October 11th, my take on the week’s financial news and how it affected Illinois mortgage rates.
The view on the economy this week changed from fear and concern to outright panic. The markets, both here and globally were in free fall this week. Stocks, 
bonds, you name it, this week was a bloodbath. When the $700 trillion dollar economic bailout bill failed to gain the markets confidence and get the credit markets moving, Treasury secretary Paulson and Fed Chairman Bernanke pulled out some more tricks from their bag and did everything but drop money from the sky. The Fed doubled their auction capacity from $450 billion to $900 billion, opened their lending window to commercial paper and dropped the discount rate by .5% in conjunction with a consortium of global national banks. And none of it made a bit of difference. The commercial paper market, banks lending to other banks, remained frozen, and stock markets around the world went back in time about 5 years to the values they were at in 2003. The stock markets now about 40% off its peak, the Dow was at about 14,000 a year ago and closed just above 8,451 today (after being below 8,000 in the morning).
This is all panic now. The credit crunch has been moving in slow motion over the last months, but now it has shifted into overdrive and its momentum is faster than the government can respond. This is all about confidence, banks having confidence that the banks they lend money to will be able to repay it, and investors having confidence in the banks and the markets. It doesn’t help that this is happening right before a presidential election. President Bush is the lamest of lame ducks and is no help in showing leadership and confidence in our system. Treasury Secretary Paulson has gone from near invisibility to being our defacto economic president. There are at least two more tricks up his sleeve, though, and as prices dive lower the panic may be running out of steam.
The bailout bill, for all its hype didn’t work. Most economists said it was poorly conceived, but it was better to pass something than to take too much time getting the right package. The panic happened anyways, and now Paulson is rolling out Bailout version 2.0. This version, the details sketched out in a late Friday announcement, would allow the government to use the money from the bailout package to buy shares in the troubled banks, recapitalizing them and giving the market confidence (having the treasury as a partner should be a confidence builder, but which banks will be rescued and which allowed to fail will be part of the drama going forward). This is the same basic plan that Britain announced earlier this week, and a similar plan worked well for Sweden when they had a similar crisis back in the 90s. The G7 group of industrial nations is meeting in Washington over the weekend, and there is still hope of more concerted action to attack the crisis (so far they are having trouble even agreeing on a common statement).
So far helicopter money isn’t helping. Yet. At some point greed will replace fear, the panic will end and we’ll see improvement. But getting the credit market functioning again and the markets out of the nose dive is just the first step. We are in a recession and the housing market is still the root of the problem. But there are some good signs, too. Oil prices settled under $80, the lowest in over a year. Food and other commodities are falling too. The price increases we’ve been getting used to should be over for a while and consumer prices should drop noticeably over the coming months.
Mortgage rates jumped this week as mortgage bonds got slaughtered. The week started with money flowing out of stocks and into treasury bonds and mortgage bonds. But as the week went on, and especially after the Fed announced their surprise rate cut, mortgage bonds fell through support levels to their worst level in over a month. In a normal market when the stock market goes down there is a flight to quality and money rushes out of stocks and into bonds, including mortgage bonds. This isn’t a normal market. Investors don’t know who to trust, and even though the government stands behind Freddie and Fannie and is the stabilizing force in mortgage bonds, in a hyper-volatile market investors dumped mortgage bonds. Mortgage rates jumped about 3/8 of a point for the week.
On the real estate front, despite all the turmoil, people are still buying homes. The buyers I’m seeing are mostly first time home buyers, and it seems short sales (where the seller sells below the current mortgage value, subject to the mortgage holder’s approval) are the hottest thing right now. Mortgage money is available, and there are plenty of bargains out there if you are in a position to buy. This is a tough market if you have a home to sell, but if you are a first time home buyer, are transferring into the Chicago area or if you are ready to buy and don’t have a home to sell, you are in a position to get a great home at prices that would have seemed ridiculously low just a year ago. There are still a lot of homes for sale on the market, and the market won’t bottom out until this inventory is reduced. But there is also pent up demand from buyers who have been on the sidelines waiting for the right time to jump in. It takes nerve to buy during nervous times, but the best time to buy is when fear is in the air. Home values now could look like bargains a year or two from now.
Here is what Illinois Home mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee. The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or Contact me Illinois mortgage company and I’ll take the time to find the rate and program that is best for you.) :
Conventional loans up to $417,000
30 year fixed rate 6.375% 6.564% APR
15 year fixed rate 6.00% 6.137% APR
5-1 A.R.M. 6.00% 6.213% APR
For Jumbo loans over $417,000
30 year fixed rate * 6.50% 6.615% APR
Special pricing requires 25% down payment or equity
7-1 A.R.M. 6.375% 6.486% APR
FHA LOANS - 3% down payment
With 1 point origination fee – 60 day lock
30 year fixed rate 6.25% 6.834% APR
With no origination fee – 60 day lock
30 year fixed rate 6.50% 6.867% APR
FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.
These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.
With the markets closed for Columbus Day on Monday, there is an extra day for the markets to calm down and possibly for more globally coordinated action to calm the market. Still, expect the volatility to continue this week.
Illinois Home Mortgage Rates and News
Posted in Economics and Trends, Illinois Mortgage Rate Weekly Update, Opinions and Prognostications | Comments Off
credit were choking the system. Big banks and financial powerhouses were on the edge of failure and our whole economy was in the danger zone. The Fed moved decisively to inject credit into the financial markets and stem the panic. Wall Street breathed a sigh of relief, but the easier credit didn’t trickle down to the small business or home mortgage markets. On Main Street the stranglehold still seems pretty tight. The economy hasn’t been growing, but with the rate cuts and stimulus checks there have been some signs of activity. And now with gas and food prices spiking up, the worry has turned from the softness in the economy to the threat of inflation. Over the last few weeks mortgage rates headed higher as the financial community, in mass, called for higher rates to stop the inflationary spiral that was about to hit us. Last week it became official that the economy was on the road to recovery when former Fed Chairman Alan Greenspan announced that the credit crunch was over, or would be soon. This week a new message is coming through – not so fast, we might not be out of the woods yet.
economic stagnation. The Fed has been walking out on this tight rope, careful to not lean too far one way or the other. It’s been a difficult task and so far it looks like they are dipping on both sides, but still maintaining balance. The economy is slowing and inflation is heating up, but there are signs we are heading in the right direction.
mortgage bond markets and how the fear and greed balance out. On a day to day basis mortgage rates have been extremely volatile, and it has become almost commonplace for mortgage bonds to go up or down 40 tics in a day, an amount that used to be exceptional. There have been days when the market has moved as much as 100 tics, with multiple re-prices during the day. But if you pull back and look at the activity from a longer view, we are going back in forth in a fairly narrow range. This week the mortgage backed securities markets had two days where prices went up, a lot, two days where they went down about the same, and one day, Friday, where they moved around a lot, but ended with no change. There was a huge swing between the high for the week and the low, but at the end of the week we were very close to where we started. Over the last two months we have seen this same trend, though in a wider range. The market reacts (overreacts?) based on news reports and whatever happens that day seems to be the most important factor, until the next, possibly contradictory report is released the next day. Chances are that as long as the forces of inflation and the slowdown counteract each other, we will continue to stay in this range. What this means is that you should be aware of these trends if you are buying a home or refinancing your mortgage, and take these trends into account when locking your loan.