Hello Everyone - Dave Andrews your RED-headed Mortgage Guy with something notable,
Periodically, things happen in the market that need some explainin'. Today is one of those days.
If you haven't heard the last 48 hours has not been very kind to interest rates. Two days ago I was
quoting 4.875% (5.1% APR) on a 30 year fixed rate conventional loan. Today I'm quoting 5.375%
(5.55% APR).
As I have said in recent sales meetings, when rates decide to move up it will be quick & ugly. What
we've seen the past few days may be the beginning of higher rates. HOWEVER, there still is some
ugly news regarding the housing industry. Today it was announced that 12% of homeowner's with
a mortgage are either late on their house payment or in foreclosure. That doesn't signal a recovery
to me.
Also, I think it's funny that the media says that unemployment claims are slowing. This comes in the
face of GM preparing to file for bankruptcy. It was also announced that the unemployment rate will
rise in May and will reach 10% by the end of the year. Does that sound like good news to anyone?
It's amazing that "analysts" see unemployment claims slowing, did they ever think that you can only
lay off so many people before there aren't any more to lay off or you don't have a workable company.
Read the views of the market below - VERY INTERESTING.
The Obama administration is facing its another test on the housing market. Can it hold? Will it keep mortgage rates low? The Federal Reserve is doing all it can. Purchases of mortgage-backed securities have taken the Fed's mortgage holdings above $350 billion. The spread between mortgage and Treasury yields held below 2.00% while Treasury yields soared, but today the spread gapped wider by - gasp! - 0.30%. It closed at 2.30%, its widest level in months. (In 2003/2004 that spread was closer to 1%, this means banks are hoarding even more money on loans.)
All it took was a little Treasury debt auction, and market psychology turned on a dime. All of a sudden, traders fear that Treasury debt won't be absorbed, China will snub U.S. offerings, and inflation will rear its ugly head. Fear sent mortgages plummeting, down more than a full point yesterday.
Treasury yields leaped in recent weeks - up 0.61% on the ten-year Treasury in the past week alone. Warren Buffett wrote in Berkshire's annual letter in February that when "the financial history of this decade is written...the Treasury-bond bubble of late 2008" may rank up there with the housing bubble of the middle part of the decade. Pimco's chief investment officer, Mohamed El-Erian, was blunt at year's end, saying, "Get out of Treasuries. They're very, very expensive."
Treasuries have lost their appeal. It's no secret that the U.S. budget deficit is exploding from the combination of weak tax receipts and sharply increased spending. Yields are very low by historical standards, the government is issuing huge amounts of debt to fund record budget deficits, and the massive federal stimulus program ultimately may lead to much higher inflation. The government-bond glut is hardly confined to America. Combined issuance in the U.S., Europe, Japan, Canada and Australia could come to $4.2 trillion this year. The yield curve steepens daily, stretching the difference between short- and long-term yields.
Sure the 10-year Treasury could hit 5.5%, but not any time soon. Morgan Stanley thinks that Treasury rates won't shoot the moon, and we agree. Plenty of deflation, weak demand, and slow global growth is in front of us. The economy is turning the corner, but very slowly. The Federal Reserve is working through a program to buy $300 billion of government debt through the end of September. It has already purchased more than $100 billion.
The Fed also has a program to buy $1.25 trillion of agency mortgage securities as part of an effort to depress mortgage rates. Don't fight the Fed - rates could very likely come back down.
Comments(4)