Mortgage rates have remained, quite remarkably, in a narrow range - remaining below 5% despite the ten-year Treasury note taking a beating for the past week with the yield now at 3.14% The reason this is remarkable is that the ten-year yield has risen 75 basis points over the past several weeks while mortgage rates have barely budged. Normally we would see a tight correlation between the two but these are hardly normal times. Rates have, instead, been held down by Federal Reserve actions that have balanced a healthy demand for mortgage-backed securities with government debt auctions needed to raise dollars for everything from fiscal stimulus to government bail-outs. I admit I am a little surprised that mortgage rates have remained so low but I certainly am not complaining.
More positive economic news on the housing-front this week as the National Association of Realtors reported that pending home sales rose by an unexpected 3.2% in March. The Commerce Department also reported that construction spending in March rose .3% which may not sound like much but it is far better than the 1.5% decrease analysts had expected. Many economists are now saying the market is “testing the bottom” as home inventory has now fallen just under a ten month supply and pent up demand could squeeze inventories further in the months ahead.
While we wait for the results of the Government’s “stress tests” for the nineteen largest U.S. banks, it appears that banks are now at least more willing to lend to each other. The three month LIBOR index fell below 1% for the first time ever on Tuesday. This is the most common rate index for measuring the rate of liquidity in the financial system. In contrast, the LIBOR exceeded 6% back in September as banks were refusing to lend to each other over fears they would not be able to repay. If the majority of the large banks pass the “stress tests”, or at least don’t fail them, a renewed confidence in the health of the financial system should further lubricate the credit markets.
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