Mortgage Market Week in Review
by Tom on September 12, 2009
in Market Musings, Mortgage Market Week in Review
Well, it’s time to take an overview look at what’s been happening in the mortgage and finance markets this week. It’s been a strange week. Let me explain:
- It was a relatively quiet week. I heard one analyst on CNBC describe it this way: “All the traders are back in the office but most of them haven’t had enough coffee yet and are so exhausted from spending vacation in the Hamptons” and aren’t working real hard. Part of that quiet was also due to a lack of major news in the economy.
- The economic results were decidedly mixed. Consumer confidence was good, the Fed’s Beige Book report was varying between lukewarm and cool depending on the region.
- Geithner testified before a House committee that the worst was over and we were definitely going to have to start withdrawing some of the “life support” (my phrase) that we (you and me) have extended to the financial markets. Withdrawing that support is going to eventually make money more expensive. The law of supply and demand says that they flooded the market with supply and that lowered the cost. Now, if they withdraw the support, that’s going to raise the price of money. The price of money? The interest rates.
- Trulia (www.trulia.com) announced that in the last month, sellers had knocked $28,500,000,000 (that’s billion) off the asking price of the real estate listed on Trulia. The average drop was approximately 10%.
- The Treasury held an auction of 30 year money and LOTS of people came to the party. The rate didn’t change much from past but the volume of buyers surprised a lot of people.
- The value of the dollar plunged and gold climbed to above $1,000 per ounce.
So what sort of reaction would you expect the markets to have? I’d have to say I’d probably expect the results to be decidedly mixed. A lot of movement but not a lot of real change.
Wrong!
This can probably be described as a week where people bought everything. The news is bad – buy stocks and buy bonds. The news is mediocre – buy stocks and buy bonds. The news is good – buy stocks and buy bonds.
This is not the way it normally works. Normally the money flows with the news. The news is good – the money flows into the stock market (and out of the bond market). That means that stock prices would go up and bond prices would go down pushing rates up.. The news is bad – the money flows out of the stock market and into the bond market -stock prices fall and bond prices go up pushing rates down. The news is really really bad – the money goes into the mattress and stock prices fall, bond prices go down and rates go up.
So why are we in a situation where stock prices went up and bond prices went up? I think it’s a couple of factors:
- As people feel the economy is inching back from the “brink of the abyss,” they are starting to look at what’s in their retirement and investment portfolios and finding out that they have taken a beating. So they are trying to be more aggressive and trying to “catch up” quickly.
- There is an ongoing debate on Wall Street and elsewhere regarding whether the worst is really over and how bad the rest is going to be. The camp that believes the worst is over is buying stocks. The camp that believes we aren’t out of this yet is buying bonds because of the relative safety of them.
So what does it mean for mortgage rates? A couple of things:
- Rates have dropped a little bit this week. I’ll send an update with the current rates as soon as I’ve got them on Monday.
- The trend has been inching downward all week.
There are some significant questions regarding both the short term and long term prognosis for rates:
- What’s going to break rates out of this cycle of drifting slowly downward? (short term) – Possible Answer – some really decisive economic reports either to the good or the bad.
- What’s going to be the decisive influencing factors that would break things out of the cycle that they are in? (long term) – Probable Answer – the impact of the removal of the government stimulus efforts on the economy. What is the housing market going to look like without the 1st time buyer subsidy? What’s the commercial debt market going to look like when prime doubles from it’s current level? What are the mortgage backed securities and Treasury markets going to look like when Uncle Sam isn’t buying billions and billions of them? The overall trend is going to be higher.
Therefore, my recommendation for mortgage rates hinges on when you need the money:
If you are closing within 2 weeks – my recommendation is lock in the gains we’ve seen and grab them now.
If you are 2 to 4 weeks away – the aggressive ones could cautiously float. Otherwise I’d recommend locking. If you float, keep very close tabs on the market.
If you are more than 4 weeks out from closing – I’d recommend cautiously floating. You’ve got some time and my take is that we’re more likely to see market moving economic reports to the negative than we are positive.
I’ll continue to keep you informed. Let me know what I can do to be of help.
Thanks!
Tom Vanderwell
