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Today we opened at 6.25% on the 30 yr fixed with the 15 yr at 5.75%.  Jumbo mortgage rates are far superior with the 3yr/5yrArms starting at 5.5% to 5.875%.  FHA/VA sit in the low to mid 6%.

There has been a lot of talk the Fed will increase rates to stem inflation, most believe the Fed will increase rates early in 2009; we do not see it likely though. We are not looking for any increase in the Fed funds rate anytime in the next six to nine months. The US economy is weak, inflation concerns are waning as commodity prices fall and the dollar gains more strength. In Europe and Asia the economies are slowing at an increased pace; the ECB is likely to cut its base lending rate within the next few months.

Mortgage rates are likely to decline at a more rapid pace than treasuries in the months ahead. The spread (difference) between the 10 yr note and 30 yr mortgages is about 270 basis points, about 100 basis points wider than the historical norm (this is why the adjustable rate loans are not much better than the 30yr fixed right now). Not likely to happen quickly, but we expect MBS securities will slowly gain momentum as investors shrug off the acrid taste of the sub prime mess. Investing in MBSs securitized in the past year should increase in appeal as the housing markets finally hit bottom in mid-2009. There is nothing wrong with mortgages originated these days, and the yield spread is very attractive. We are also not too worried about the appraisals and values declining, most markets are close to a bottom now and even if values decline a little more that shouldn't deter investors. The more savvy investors already have their feet in the water.

Content from the Shirmeyer Rate Market Report from Sigma Research, INC.