Crude oil prices jumped $25 at one point Monday, ending the day up by 16 percent.

This is an unwelcome development for home buyers because the same market forces that pushed up oil prices had a similar impact on mortgage rates.

It all comes down to the U.S. dollar.

Because both crude oil and mortgage-backed bonds are denominated in dollars, the fate of both instruments has been closely tied to the greenback lately.

With respect to the mortgage market, when the dollar has been strengthening, rates have tended to fall. And, when the dollar has been weakening, mortgage rates have tended to rise.

Yesterday, the U.S. dollar had its worst one-day performance against the Euro in history so it only follows that conforming mortgage rates spiked. Across the board, they added about a quarter-percent.

Add this quarter percent to the run-up from last week and conforming mortgage rates are now close to 0.750% higher than where they were last Monday, further evidence that how quickly the market can move.

Getting a great, low mortgage rate is often a combination of luck and preparation.

Consider what happened in conforming mortgages this week:

• Monday, mortgage rates plunged to their lowest levels of the year
• Tuesday, they bounced back in full
• Wednesday, they clicked higher by a eighth-percent
• Thursday, they clicked higher by another eighth-percent

And so, here we on are Friday, four days after the best rates of the year, and the mortgage market barely resembles itself. Despite what the papers tell you, mortgage rates are not low anymore.

That’s the luck element — you can’t plan for rates moving up and down.

But, if you missed Monday’s plunge, and don’t want to miss the next one, all you have to do is get prepared. Then, you’re waiting for luck when it happens.

There are 4 basic steps to prepare for low rates and the key is to follow them before rates plunge, not during. That way, you’re ready to pounce on low rates at the moment they present themselves.

The first step is to contact your loan officer.

If you don’t have a loan officer, or your loan officer is no longer in the business, ask a friend for a referral. Do not call the 800-number on your mortgage statement — you’ll almost always get a better “offer” from a live person than from a call center representative.

Next, give your loan officer a complete mortgage application, including a “credit pull”. Be honest and accurate and don’t worry about the credit check harming your score — the bureaus protect it for a period of 30 days.

Then, ask your loan officer what supporting documentation will be required to approve your eventual home loan. Whatever it is, gather it and send it in — either by fax or email.

And lastly, be ready to act when your loan officer calls with the good news. If rates have dipped to lower-than-normal levels, it likely won’t last long.

This preparation process is very similar to what home buyers do before making an offer on a home. Getting ready for a refinance is like getting pre-approved, but instead of waiting to pick out a home, it’s waiting to pick out a rate.

So, to summarize:

1. Contact your loan officer
2. Give a complete application
3. Gather and submit supporting documentation
4. Be ready to act

Mortgage rates don’t plunge often, but when they do, it’s usually short-lived. If you’re prepared for when it happens, you can lock in the best mortgage rate available at the best possible time.

It will be your lucky day and you will have been ready for it.

In August, home builders broke ground on the fewest number of homes since January 1991.

It was the 16th straight month in which Housing Starts declined.

But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.

With fewer new homes coming on the market, home sellers are finding that there’s less competition for buyers, helping them to command higher prices for their homes.

It’s Supply and Demand in its most basic form.

But that’s not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.

Again, Supply and Demand. Good for sellers, bad for buyers.

However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what’s happening in your town, your neighborhood, and your street. But, if we learn one thing from the chart above, it’s this: builders are rational.

If homes won’t sell, builders will stop building them. And, sooner or later, the market — and home prices — will catch up.

For the third consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.

Of interest to mortgage rate shoppers, the FOMC led its press release with comments about the health of the financial and labor markets, calling them “strained” and “weakened”, respectively. The relative weakness in both of these areas has contributed to low mortgage rates of late.

The FOMC also noted in its release that, although economic growth has slowed this year, the historically-low 2.000% Fed Funds Rate should foster “moderate economic growth” in the future.

In the wake of the announcement, Wall Street is rallying. Investors like what the Fed had to say and this is attracting money to the stock market at the expense of bonds.

Mortgage rates have given up all of Monday’s gains, and then some.

Source
Parsing the Fed Statement
The Wall Street Journal Online
September 16, 2008
http://online.wsj.com/internal/mdc/info-fedparse0809.html