As I sat in my chair watching my pipeline move into a dormant state due to the recent rate increases, a sudden avalanche of interest rate deterioration notices from multiple lenders bombarded my e-mail inbox.
Immediately, I checked the stock market and the bond market for obvious signs of activity that could have caused the ruckus, but there was nothing out of the ordinary. I looked at the 10 yr treasury index and there was nothing astounding there either. However, when I looked at the Open Market Transactions for the New York Fed, the evidence was in broad daylight. The Fed had just purchased another $8 billion in securities. This basket of bonds was spread out into seven purchases in one day, with the largest single transaction being $3 billion. The effect was immediate, and this financial shot was heard around the world.
Make no mistake, a variety of other factors have weighed heavily on interest rates
(and also our industry) over the last two weeks. Last week, upticks in year-to-year retail sales sent rates up .125%. Positive government economic reports edged rates up higher as well. Moreover, the debate and eventual extension of the Bush tax cuts, along with the perception (and/or fact) that these cuts will keep more money in our pockets while deepening our deficit has added to the rate increase as well. However, the largest piece of the nearly 1.00% point increase in rates (over a 30 day period) has been our Fed's decision to press onward with the second phase of quantitative easing, also known as "Q.E.2."
I watched Mr. Bernanke on 60 minutes a few weeks ago, and he was completely non- apologetic about what has been done to date, and what he and his colleagues plan to continue doing to "restart the economy." However, in this instance, not only is the American market screaming at the top of its financial lungs to stop purchasing bonds, but the other world powerhouses are in agreement as well. China, Germany, and the U.K. have all chimed in to denounce QE2, saying that the U.S. continues to print more money, which adds to the deficit and manipulates the value of the dollar. The payback in the markets has been fierce. The dollar is down sharply against both the British Pound and the Euro. Investors have been selling off bonds in the billions, which has the inverse effect of raising rates. Moreover, the Dow has been particularly erratic with 200-500 point swings occurring on a weekly basis.
The evidence is real. These facts have brutal consequences. In the last 30 days, mass refinances came to a screeching halt, particularly for those looking for a "fixed rate in the low 4s." Purchases have equally slowed down. Individuals who barely qualified for a home purchase can no longer move forward because their "back end ratios are too high now." Mortgage brokers and realtors are seeing a drop in interest, but Mr. Bernanke and the Fed affirm that this is the "right course of action." I don't see it and my wallet, along with others don't feel it.
I remain hopeful that Mr. Bernanke and his colleagues truly know what they are doing. He hasn't flinched, but the market has; in fact, it has flinched a lot. As long as he continues on the current path and the market continues to react as it has, nothing good will come of it. The housing market and all of its components are always involved with our nation's recessions, and are always linked to the recoveries. In my opinion, our nation won't recover with this strategy, and will continue to recede. Bernanke and the other Federal Reserve Board of Governors say this is the right course. However, the investing public around the world says we must change course. Seven people in Washington D.C. versus millions of investors around the world--who has the right answer?? I think that we will know the answer in less than two months. Uh oh.....I just heard a another "ding" in my Outlook inbox. Oh no.....another rate increase notification. I guess that Ben is at it again!!
Reprinted from Broker Agent Social
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