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More Good News for Mortgage Rates!

On Tuesday, November 25th the Federal Reserve announced a new plan under which they intend to purchase $500 billion in Mortgage Backed Securities (MBS). Since Tuesday we have seen the price of MBS rise by about 150 basis points which equates to a .375% drop in interest rates. Mortgage rates are back around 5.5% for the 1st time since early 2008. During the year we have seen opportunities for rates in the 5.625-5.75% range only a few times and the 5.5% range twice (Jan and now)…these windows have not stayed open long. The new program by the Fed should allow rates to remain low throughout the remainder of 2008. The purchases they are considering are to be made between now and the end of the year. Unfortunately there is no way to tell how low the rates will go although I think we have to be close to the lows. The 5% range or lower is very tough to penetrate but I think we will a few opportunities at 5-5.5% (rates actually got to 5.375% for a brief moment on Tuesday this week).

I do not want anyone to miss this opportunity. There are many media outlets and people in the public who will continue to say that interest rates will go lower but please be careful with this approach as the markets are under considerable stress. In a normal market everything that is happening should contribute to lower rates over time but we are not in a normal market and history, theory or opinions can not be trusted. The volatility we are experiencing has never been seen in financial markets and we are seeing wild and dramatic rate swings.

I do expect this volatility to continue for some time. Rates may get better but my bet is that they will also get worse and continue to move in wide ranges over the next 6-9 months. What we do know is that we have a great opportunity to buy a home or refinance at rates seen only a few times in recent history. This window may be long and may last a while but it also may be over this week. Evaluate your situation and if you feel waiting is worth the risk and let me know if I can do anything to help.

Billy Winfree, Pinnacle Financial Partners

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