This morning we get no economic reports.
In breaking news, President Bush announced this morning an auto bailout of $13.4b with another $4b in February. This money will only go to GM and Chrysler and it is going to come from the TARP funds. The reason for the sell off this morning, is the TARP funds are supposed to be for housing and banking, not the auto manufacturers. We are also seeing the stock market open higher, which is drawing money out of the bond market. It will be interesting to see if the rally in the dow will continue. It seems to me that the auto bailout is just buying time and not correcting the problem, so I wouldn’t be surprised for the ether to ware off and the dow start to sell off which would bring money back into the bond market.
Hard to say how lender’s rate sheets will look this morning. With where the price is on the current coupon, the FNMA 4.5, we should be seeing rates in the middle 4’s, but lenders are unwilling at this time to pass along the gains. Lenders that need more volume of loans might price very aggressively, and lenders that have too much business will price very weak.
After the press conference from President Bush, mbs sold off 11ticks but have since started to turn around and are only down 7 ticks from close yesterday. If you are closing this month, hopefully you are already locked, but we feel floating is still a good call if closing in January. It appears we are heading for a bumpy road today and to make it even more bumpy it is quadruple witching day which means A day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This creates a lot of volatility.
The bleeding has stopped in the mbs market, we are only down 5 ticks from yesterday. Maybe the Treasury has stepped in to buy to bring prices back up. That is one of the biggest reasons for the float bias for January and beyond. Anytime mortgage backed securities start to sell off, the Treasury should act as a back stop which should move the prices back up. This is what they stated with the Fed announcement earlier in the week.
I am getting a lot of emails from readers, keep them coming. I will try to respond to every one of them in a timely matter. Many of these emails are asking if they should go ahead and lock. If you can lock a 30 year fixed rate mortgage under 5%, it would not be a bad idea to lock. You can chase rates for a long time, but if you are happy with the rate and the cost, locking is never bad. I do believe that we will see the better rates next year, but 1 head line could change things. We are in very unique times with our economy and things can change very quickly. And as said before a bird in hand is worth more then 2 in the bush.
I will keep you alerted throughout the day, but expect volatility. In other good news, oil continues it’s descent currently at 35.62 a barrel. Even though OPEC just announced the biggest cut in history to production, demand is still falling sharply around the world due to a sagging world economy. Many analyst are predicting oil to be in the $20 to $30 range. What a great stimulus for our economy to have gas so low, currently where I live gas is $1.39 a gallon.