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The Mortgage Street Smarts of where mortgage interest rates are going (and why):
The following information is current as of Friday 3-23-2012 and will help you understand todays best mortgage rates. If you are a Buyer/Borrower who is still on the fence (or if you are a Real Estate Agent attempting to educate your "on the fence" Buyer), please review these trends and secure an historically low interest rate before it is too late.
The market closed Thursday with a WORSENING to pricing (and will typically warrant a pricing adjustment by most Lenders). Thursday's WORSENING resulted in a change of 12 basis points (bps).
(hint: upward activity is good, downward activity is bad)
The following chart shows the market activity for today:
The following chart shows market activity over the past 10 days (hint: green is good, red is bad):
The following chart shows market activity over the past 1 month:
Daily Interest Rate Snapshot (sample of rates from one of the country's largest Lenders...individual pricing will vary based on specific Borrower qualifications): NOTE: This Lender has quoted a 1.00% Origination Fee (1 Point) to accompany this pricing. It bears noting that this chart does not necessarily represent todays best mortgage rates.
Market Commentary
Analyst: Lou Barnes
A group of colleagues asked me two weeks ago what interest rates were going to do. I answered in an authoritative voice, "They've been in the same place for seven months -- it'll take an earthquake to move them."
Ahem. The opinion was correct, but I was clueless about the proximity of the quake. An "F" for that. In one week the Fed announced no MBS-buying QE3, US economic data improved, and Europe re-re-floated Greece. Until one or more of those three things change, technical analysis is the usual guide, looking for chart-pattern "support." There is none of that, either. The 10-year T-note fell from 3.00% last August to 2.00% in a single, straight-line month, and spent very little time north of 2.15% in the next seven months. Having now blown up near 2.40%, 10s are in Never Never Land, likely to wander in a wide range until something happens, mortgages 4.25% or more.
So, while waiting, explore what is really happening in Europe, and why it will remain defiant of solution. The real problem is not profligacy by Club Med, or tax evasion, or even too much debt. The real problem is trade imbalance among nations locked in the equivalent of a gold standard.
All civilians' eyes glaze at technical descriptions of currency movements, and the interlocked European thicket. But we have a new single-nation example -- Brazil -- to use for a non-technical explanation.
Brazil has enjoyed a red-hot economy for two reasons: resource exports to China, and manufacturing highly stimulated by government-induced credit. By part of government. To prevent red-hot growth from turning into inflation, Brazil's central bank by last summer raised its interest rate to 12.5%, the highest among modern nations.
With an interest rate so high -- Brazil's 9-year government bonds pay 11.40% -- investment money has poured into Brazil to take advantage. Which in turn pushed the real to stratospheric levels versus the low-interest-rate rest of the world.
As the real rose, it began to harm Brazil's exports, especially its new and booming manufacturing. So Brazil's leadership has tried to limit the flood of cash into Brazil, two years ago installing capital controls to reduce the in-flow, foreign cash to earn less (net of fees and penalties) than domestic cash. Money came anyway, the interest-rate differential overwhelming.
Brazil's economy has begun to slow -- almost to zero -- under the weight of rates set to stop inflation, and the sky-high real. The central bank has cut its rate to 9.75%, but cash is still pouring in. So, last week Brazil announced new measures, every one a violation of some trade agreement or another, to weaken the real while leaving high rates, exports, and manufacturing in place. The basic method: print a mountain of real and see if it can get foreigners to take them, but do no domestic harm.
Right. One nation, trying alone to manage inflation, exports, manufacturing, and economic growth, in a world in which all emerging players (and some emerged: Japan) are trying to get an edge on the others via the same manipulations.
Europe. 17 nations each with one form or another of Brazil disease (or success), but ONE currency. Those with trade deficits cannot print euros to make their exports cheap; those with trade surpluses think it is so because of their special genius, not because the euro is under-valued for them. All have the same central bank, rates and money too high and tight for the weak, too low and loose for the strong.
The only "give" in Europe is wages. The strong feel rich, and are, wages rising in real, non-inflationary terms, economies at risk of asset bubbles. The weak… to make their exports competitive, their wages must fall -- throughout Club Med by 30% or more. Cut wages like that, and workers cannot pay debts and taxes.
One could ask why Brazil does not just drop all the shenanigans, play it straight and let the real find an appropriate level. In Europe, the weak have this one choice: become good Germans, no matter what the price. Debt is a sideshow; trade and currencies are the real deal. And I still think Club Med will tire of taking orders from the North.
Trusted Industry Advisor
The above information was compiled and distributed by San Diego Residential Mortgage Specialist, Jason E Gordon. As a Certified Mortgage Planning Specialist (CMPS) Certified Distressed Property Expert (CDPE) and Certified Mortgage Coach (CMC), Jason E Gordon utilizes his advanced training to examine a prospective Client's complete financial picture, while carefully listening to their overall goals. If it is mutually agreed that a new loan makes sense to pursue, Jason strives to make the entire loan process as seamless as possible. He truly believes that providing open communication and patient educational guidance to his Clients and Business Alliances has been a pivotal component to building his business, while enhancing his reputation in the Mortgage Industry as a Trusted Advisor. Visit www.jasonegordon.com or www.ApprovingSD.com or more information.
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