Chris Simms, Certified Mortgage Planner, with Pulaski Bank in St. Louis has been providing us with valuable information on the Mortgage Industry.  We asked Chris to give us a quick update since we have seen quite a bit of activity in the market this week. 

"It is amazing how much History repeats itself.  On Tuesday of this week the Fed made a surprise move and cut rates by 75 basis points to show foreign markets and us investors that they are still in the game of helping to save us from a recession.  This was an emergency move because they are expected to meet next week and also make another cut to rates.  The last time the Fed did this was on September 18th.  They made an amergency cut then by 50 basis points.  That day mortgage bonds traded higher. 

On Tuesday of this week mortgage bonds did the same thing and traded 53 basis points higher.  This is huge, first of all as you have heard me talk before, when the fed cuts rates it hurts mortgage bonds.  This time it didn't.  This is the reason why.

The Fed told everybody that they were right and that we are heading near a recession so they needed to move, thus confirming all of the fears.  So investors pulled their money out of the stock market and threw it into bonds (yeah).  The next day following on September 19, the mortgage bonds started trading better and then all of a sudden fell and fell hard.  The same thing happened on Wednesday.  They opened an additional 39 basis points higher and then in a blink of an eye fell 94 basis points.  The stock market gained 600 points. 

Thursday the stock market continued to gain strength and investors pulled money out of bonds and poured them into the stock market hoping to find some bargain stocks cheap.  It was so dramatic that at 10:00 a.m. Wednesday rates were at 5.25%, by 1:00 p.m. they were at 5.625%.  Then by the end of the day they had hit 5.75%.  On Thursday rates finished at 5.875% on a thirty year rate.  That's insane to move 75 basis points higher in 24 hours.

So what do we expect for the next couple of weeks:  Well just as it happened in September, I expect the next several weeks to follow suit.  We will continue to have a lot of volatility.  But we do expect rates to continue to come back down.  How low, I don't know and if I did I would be in Tahiti enjoying a beer on the beach.  So hang in there and just be patient.  Besides since when was 5.875% on a 30 yr loan bad?

In other news, it appears that congress and the White House are agreeing on a stimulus package that could be interesting.  They are wanting to raise the conforming loan limits to $729,750.  This would save jumbo loans below $729, 1- 1 1/2% in interst rates.  This could be a big deal for real-estate in St. Louis.  Especially since St. Louis was rangked in the top 5 cities with appreciation last year and a great place to own real estate.  (something we knew all along)  By the way, if you haven't checked we still had positive appreciation in the metro area last year as opposed to the rest of the country dropping 1.8% in value last year.  This was the first nationwide decline in Real Estate since Realtors started tracking this 40 years ago.  Although that might sound bad, think of it this way.  Many parts of the country saw gains of over 100% in a five - six year period.  If the stock market rose 100% iin five years and then dropped 1.8% for the next two years, would anybody talk about it?  I don't think so.  Not like the doom and gloom we are hearing now about real estate.  I will say that every commentator I have heard from is saying that real estate is a great place to park your money!  So get on the stick, start saving and buy a home or two!"

Questions may be addressed to csimms@pulaskibankstl.com or by calling 314-229-4242.