Will January 2011 San Diego Mortgage Rates Fall Back to November 2010 Levels?

By
Mortgage and Lending with San Diego VA Home Loans/858-777-9751

confusedIf you've been following my mortgage rates report, you'll notice that I've had some challenges with my compass this past year.  That's to be expected in market distorted by an 800-lb, gorilla (The Federal Reserve Bank). 

A year ago, I cautioned that mortgage rates could quickly rise to the 6% level when the Fed stopped QE1:

That's what I think is happening today.  The MBS traders are purposefully selling mortgage-backed securities, knowing that the Fed will buy every last bond they offer until they are "bone dry".  Everybody is running towards the finish line (6%) now and they don't care how wet they get along the way.

Mortgage rates are headed to 6% and it probably won't take until March, 2010 for them to get there.

I was wrong on that.  The overriding prospect of QE2 (which was announced) was the hammer the Fed needed to keep rates around or under 5% for most of 2010.  When the Fed announced QE2, mortgage rates had plummeted to the 4.25% level.  What resulted after the announcement however, was an unitended "pop" as the market collapsed.  Mortgage rates immediately shot up to 4.75%-5%, in December, and I thought the sell-off might have been overblown:

I think we could see rates move back to the pre-November levels.  If you have a closing after December 15, 2010, you might consider waiting to lock-in your interest rate.

In summary, I have enough evidence to warrant a delayed lock-in strategy.  The rewards are a potentially .25% lower in mortgage rate but the risks are treachorous.

My strategy of a cautious float didn't really hurt any customers, as rate vascillated between 4.625% and 4.75%, for most of December,  We did have a scare before Christmas, when rates peaked at 5% but, for the most part, mortgage rates were stable after the ides of December.

What then for January 2011 ?

babyThe mortgage market isn't reacting to economic data, conflicting as that might be.  We see figures released which show that the economy is growing, and mortgage rates get better.  Contrary reports suggest that the economy might be sputtering and mortgage rates rise.  The dollar declines against foreign currencies and rates decline.  North Korea and South Korea flirt with a potential nuclear conflict and mortgage rates rise.  There was little to no correlation between released economic data and market movements in December.

Political risk may now be the new mover to mortgage rates.  The Fed is buying treasury securities and it's tought to fight the Fed.  Massive government regulations of free enterprise (including those facing the mortgage industry), are dragging economic productivity down, dissuading private sector expansion, are an extra cost on all industry.  Late minute budget deals and tax code changes have the private sector scared to engage in any risk taking or expansionary activity. 

Event risk appears to be shrugged off by the markets.  The European Union is threatened with collapse, war breaks out on the Korean Peninsula, and there will always be a crazy man in the Middle-East but the mortgage market shrugs it all off.

This whole thing is becoming a crap-shoot to me.  I think that the new Congress and a business-bashing Executive Branch could squabble and cause a lot of volatility.  The excessive regulations, unclear budgetary items, and money-printing machine should lead to high inflation which means mortgage rates should jump.  Still, the mortgage and real estate markets are anemic...again, and lower demand translates to lower mortgage rates. 

I think the first week in January will be the bellwether of what we can expect for mortgage rates in the first quarter.  Until then, I'm still floating but my finger is itchy for the lock trigger.

 

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Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

"The mortgage market isn't reacting to economic data, conflicting as that might be. "

I thimk that's true of the last four years.

"Political risk may now be the new mover to mortgage rates."

Amen!!!!!!!!!!!!

Bill

Dec 29, 2010 12:07 PM #1
Rainmaker
183,180
Janet Guilbault
Guild Mortgage - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Also floating but itchy. Will wait till the first week of next year, as you have advised.

Dec 29, 2010 12:56 PM #2
Ambassador
1,540,001
William Johnson
Retired - La Jolla, CA
Retired Real Estate Professional

Happy New Year Brian, Excellent summary and I agree wholeheartedly with the synopsis. Seems things may be picking up while the reports still show we are down and maybe in line for a double dip. I actually like that scenario better than the other way around, LOL. Half-way into the first quarter and we will have a better idea where things are heading. Here in our state we may have some surprises ahead in store for us but it will take a while as everyone gets settled in at the seat of power.

Dec 29, 2010 02:51 PM #3
Ambassador
920,196
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

An honest appraisal of the situation consumers are facing.

"Political risk may now be the new mover to mortgage rates.  The Fed is buying treasury securities and it's tought to fight the Fed.  Massive government regulations of free enterprise (including those facing the mortgage industry), are dragging economic productivity down, dissuading private sector expansion, are an extra cost on all industry.  Late minute budget deals and tax code changes have the private sector scared to engage in any risk taking or expansionary activity. "

Well said...scary but true!

Dec 30, 2010 01:57 AM #4
Rainer
63,642
The Stewart Team - Abdon Stewart NMLS 213207
AmeriFirst Financial Inc NMLS 145368 AZ BK #0013635 Equal Housing Opportunity - Peoria, AZ
Real Professionals Helping Real People

Crap-Shoot is exactly how I would define it as well. All of the things we used to pay attention to for rates just don't seem to add up. Not only are the politcs having more effect on rates, but the industry as a whole is a new political toy.

Dec 30, 2010 08:06 AM #5
Rainer
286,848
Thomas McCombs
Century 21 HomeStar - Akron, OH

Politics have always played a big part in the interest rate situation. It is not always obvious that there is political meddeling but it is there. It has been harder in the last 20 years tho, as the global economy gets more deeply involved.

If you follow the bond market you might have noticed that there is a lot of selling going on. That means the sellers' consenses is that rates are going up.

You sound like an economist. Lots of words to explain that you do not have any more idea what is going to happen than Ben Bernacke (sp?) does.

If I had to make a prediction, I would say that "it depends . . "  but with a lot more words of course.  LOL

Jan 16, 2011 01:14 AM #6
Rainmaker
311,469
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Excellent observation, Thomas.  The market is proving me wrong on this (by the way) but I'm getting close

Jan 19, 2011 12:21 PM #7
Rainer
76,547
Janet McCarthy
San Diego Homes Guide - San Diego, CA
Broker Associate

Hi Brian, great article. Can you help me spread the word about this Free Loan Modification event being held in L.A. Jan 20-26th Save-the-Dream Tour will be helping distressed homeowners get loan modifications.  

Check out the full story at www.BestSanDiegoHomesGuide.com

I'm also on Activerain

http://activerain.com/blogsview/2093059/loan-modification-free-event-get-help-now

This is a really big opportunity to help a lot of people get loan modifications and all for FREE

 

Jan 23, 2011 04:32 PM #8
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