Daily Market Update 10/31/08

Mortgage rates improved Friday following an abundance of negative economic data. Consumer Spending fell 0.3% in September, the largest monthly decline in 4 years. Consumer Sentiment registered the largest drop in 30 years, and the Chicago Purchasing Managers Index fell to 37.8 in September from 56.7 in August, the largest monthly decline in the 40-year history of the index. Surprisingly, stocks were little changed and the dollar moved higher against the euro. A growing chorus of analysts are calling on the Federal Government to officially take over Fannie Mae and Freddie Mac. An explicit guarantee of their securities would likely push mortgage rates significantly lower, more in line with Treasuries. Stubbornly high mortgage rates have contributed to the current housing crisis by preventing bargain-hunting homebuyers from entering the market. Fixed rates of 5% or less would provide a much-needed stimulus for the housing industry. No decision is expected until after next week’s election.

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