Mortgage Rate Outlook

May 29, 2009 -- Bond and mortgage
markets spasmed this week, and
the corresponding sharp rise in
rates over a two-day period served
as a reminder that even a battered
private market markets can be a
dangerous animal. It wasn't completely
clear what sparked the rout,
but there was speculation that a
combination of unclear goals in
Federal Reserve quantitative easing
programs, floods of new sovereign
debt and shoddy treatment of GM
bondholders all led to the selloff.
Yields on the 10-year Treasury
bond had lifted by just over half a
percentage point in a few days'
time, taking conforming fixed mortgage
rates along for the ride. After
standing at a familiar 5.03% on
Tuesday, Conforming 30-year
FRMs leapt to 5.29% on Wednesday
and then 5.44% on Thursday
before settling on Friday to 5.30%.
Overall, HSH's Fixed-Rate Mortgage
Indicator (FRMI), which includes
rates for conforming, jumbo
and "high-limit" conforming data,
rose by only 18 basis points to
5.64%, as the increase in the conforming
portion was tempered
somewhat by a softer response in
Jumbos. An all-inclusive average
for 5/1 hybrids increased by 10
basis points, closing the survey
week at 5.15%.
Existing Home Sales rang in at a
4.68 million (annualized) rate of
sale in April, a slight increase from
March's figure but in line with recent
figures, which have been showing a
kind of "backing and filling" pattern
for the past five months. Prices
continue to ease -- they are 15.4%
below year-ago levels, and the
supply of inventory increased back
to 10.2 months at the present rate
of sale.
New Homes sold at a 352,000
annualized clip in April, almost
exactly the same pace seen in
March. Like their 'used' counterparts,
prices here are about 15%
below last year, but inventory levels
continue to improve and now stand
at 10.1 months available. According
to the Commerce Department, the
actual number of units on the market
is now 297,000 and is starting
to approach half of the peak levels
seen a couple of years ago. The
sooner inventory disappears, the
sooner new construction can begin,
and we are approaching that day
steadily, if slowly