Last Week in Review Last weeks stock market tumble helped rates improve slightly to 6.25% on the 30yr while the 15yr is 5.75%. Jumbo mortgage rates are still far from their past levels and the 30yr fixed are in the mid 7% range and the 3/1 and 5/1 Arms are in the mid 6% range.  FHA and VA run 6.25%-6.5%.

"I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION." ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed's lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed's decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro...which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

In other news, Bonds and home loan rates saw some improvement last week after several items...including a profit warning from UPS (a concern since less shipping indicates less sales and continued weakness in the economy), a price increase from Dow Chemical due to the rising cost of energy, weak Consumer Sentiment...caused money to flow from Stocks to Bonds and helped pressure Stocks to what could be their worst June performance since the Great Depression. After all the week's action - and inaction - Bonds and home loan rates ended the week slightly better than where they began, mostly due to weaker Stocks.

Last Week in Review  The Bond saw dramatic movement last week as oil drives the market.  30yr fixed rate sits at 6.25% and the 15yr at 5.875% Jumbo Arms in the low to mid 6%  range.  FHA and VA are right at 6.375%. 

"VERY NICE. IT'S A LITTLE GREASY.BUT VERY NICE. CRUMBLE SOME CRACKERS INTO IT SHELL, THAT WILL HELP TO ABSORB THE GREASE." Peter Falk's line from the 1979 classic movie "The In-Laws" is good advice about soup.but doesn't help us much when it comes to absorbing the high price of oil, a greasy topic that continues to permeate financial headlines.

And last week was no exception, with oil prices continuing to march ever higher, despite an announcement early last week by OPEC member Saudi Arabia that they will increase oil production in the near future. They are concerned that the high price of oil will lead to lower demand and a turn toward alternative energy sources. And Friday's news didn't help, with a strike at a Chevron plant in war-torn Nigeria, Africa's largest oil producing nation. Additionally, Israel conducted a military operation for preparedness in case of a potential strike against Iran's nuclear plants - which all served to push oil prices higher still. High oil prices are inflationary - so if the march higher in oil prices continues, both the Stock and Bond markets will suffer.

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Last Week in Review 30yr fixed rates move up to 6.125% from 5.875%.  The 15yr at 5.5% while 5yr and 7yr ARMS sit in the low 5% range.  Jumbo ARMs are still the choice of loans over $417k with rates in the low 6%.

"INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN." ~ Ronald Reagan. And although you might not describe the effects of inflation in such strong terms yourself...rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.

The week was shortened by the Memorial Day holiday, but right out of the gates, inflation concerns abounded. The Consumer Confidence Report indicated that consumer inflation expectations are at an all-time high...meaning that consumers are seeing inflation as a real threat to their own financial situation. Rising energy costs and worldwide inflation fears continued to pummel Bonds lower - in fact, so low that they moved below a tough technical floor of support at the 200-Day Moving Average. This is important because Bonds have made a decisive cross over the 200-day Moving Average on only three separate occasions within the past three years. This means that barring a timely reversal, we are likely seeing a shift in the market towards higher home loan rates.