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
Mortgage Market Week in Review
by Tom on August 22, 2009
in Market Musings, Mortgage Market Week in Review
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Mortgage Market Week in Review
by Tom on June 27, 2009
in Mortgage Market Week in Review
This week’s Mortgage Market Week in Review is complete and scheduled to go out at 5:00 on Saturday, June 27. Do you see the box in the left column just a little ways down? Sign up there before 4:45 and you’ll get your own copy by e-mail. It’s totally free and hopefully useful!
Tom Vanderwell
Mortgage Market Week in Review
by Tom on June 20, 2009
in Mortgage Market Week in Review
is complete and scheduled to go out at 5:00 PM this afternoon (EST). If you’d like a copy, sign up using the box in the left hand column. It’s free!
Tom Vanderwell
I’ve taken the liberty of posting my “Mortgage Market Week in Review” here…..
by Tom on March 8, 2009
in Market Musings, Mortgage Market Week in Review
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Straight Talk About Mortgages, c/o Tom Vanderwell 111 Lyon St. NW Grand Rapids MI 49503
Mortgage Market Week in Review
by Tom on December 20, 2008
in Mortgage Market Week in Review
has been finished. Rather than sending it out on Saturday night, I’m going to send it out on Monday morning. If you aren’t signed up, send an e-mail to Mortgage Market Week in Review or fill out the box on the left.
Thanks!
Quick Summary of the Day….
by Tom on November 21, 2008
in Mortgage Market Week in Review
Okay, here’s a quick summary of the day:
3 Banks got taken over by the FDIC. The biggest one was Downey Federal, a huge “Option Arm” lender.
While Citibank didn’t go under or get bought out, but their stock was 50% lower tonight than it was Monday morning.
The stock market staged a late day rally but still ended up way down for the week. Why did it go up this afternoon? Because President Elect Obama announced that he was selecting Federal Reserve Governor Tim Geithner. Why did they rally on the announcement? Best I can say is because they liked the fact that an “insider” who has experience is going to be taking over.
Pretty much the entire financial sector of the stock market got hammered this week.
The disconnect between Treasuries and Mortgage Backed Securities has never been clearer than it is this week.
Based on some of the people I’m reading, the way that yields on Treasuries have moved this week are indicative of huge amounts of fear and tension in the markets.
The Big Three auto makers showed up in Washington begging for money, didn’t get any and left us all with a feeling that no matter whether they get it eventually or not, it’s going to be painful.
After a very calm week last week, the volatility returned to mortgage rates.
For a more detailed look at the numbers and what they mean, sign up for my “Mortgage Market Week in Review” by sending an e-mail to mortgagemarket@aweber.com. It’s free!
Have a good weekend!
Tom Vanderwell
I’m Back!
by Tom on November 14, 2008
in Mortgage Market Week in Review
Sorry for being offline alll day today and sorry for losing yesterday’s writings too! Straight Talk’s files decided to disappear off the server and it took me too long to get them back up and running.
But we’re back and I’ll be writing a lot more over the weekend to get caught up. Lot’s of stuff going on.
Plus the Mortgage Market Week in Review will go out tonight – sign up in the “spot” on the left side if you haven’t yet!
And I put some systems in place to prevent this from happening again.
Mortgage Market Week in Review
by Tom on November 1, 2008
in Mortgage Market Week in Review, Uncategorized
I want to apologize for the delay in getting this out until Saturday. Due to some technical difficulties and some new things I’m going to be implementing, Friday was spent working on computer issues. Yeah, I know, a fun way to spend a Friday…..
So, here we are at the end of the week and what’s happened? Well, a couple of things did manage to happen. We’ll talk about the Fed, what they did, why it matters and why it doesn’t. We’ll talk about earnings (or the lack of them), consumer spending (or the lack of it), inflation (or the lack of it), bailout backlash, and falling oil prices as well. So, here goes:
The Fed, as you know by now, lowered the Fed Funds rate by .5% to 1.0%. A couple of statistics about that number:
1. As you know, that isn’t directly linked to mortgage rates, so mortgage rates are not going to drop by .5% because of that move.
2. That is equal to the lowest rate the Fed has had rates this century (from June of 2003 to June of 2004). If you’ve read anything about what’s happening in the financial world, you’ll know that the former Fed Chairman Greenspan has taken a lot of heat for keeping interest rates too low for too long. Hmmm, and now we’re back to that same level.
3. The rate they lowered to is 1.0%. That means they have very little “ammo” left in their pouch if things deteriorate further.
4. Japan, in the 1990’s, had an interest rate of 0%. That’s right, banks etc. could borrow money from the Central Bank of Japan (their Federal Reserve) for nothing. How well did that work for Japan? Short answer, not very well.
Why does what the Fed did matter?
1. Because in their statement, they essentially removed all mention of inflation being a risk. For more details on what the Fed said, check out “The Fed Translated.”
2. Because it showed that they are very concerned about the economic conditions not only in our country but elsewhere.
3. Because it raises the question of whether we’re going to see a nasty rebound in inflation once we get to the other side of the current economic mess. Why? Because the problem we have right now is not that money is too expensive, the problem we have is that too many people, companies, banks, countries, borrowed too much money and now have to adjust their spending and borrowing to significantly lower levels. Making money cheaper messes with the deleveraging and also has long term effects on the value of the dollar making inflation a risk, and if you’ve been reading my writings for any length of time, you’ll know that inflation raises rates.
Why what the Fed did doesn’t matter….
Because they are approaching a liquidity (lack of funds because credit availability is shrinking) and a solvency (in over their heads with debt already) issue with a tool that really only works for normal economic cycles. If you want to increase growth, make things cheaper by lowering rates. But, if people can’t borrow money because they are either marginal borrowers or too leveraged, the cost of funds doesn’t matter.
Earnings reports (or a lack of them). I’m not going to get into the specifics of all of the earnings reports but let’s just say that with the exception of a couple of companies, the reports all showed a significant slow down in consumer spending, a significant fall off in consumer confidence, and a significant reduction in corporate earnings. There were some companies that showed otherwise, but the majority of the trend showed that we’re in a quite dramatic slowing of the economy. The GDP reports for the 3rd quarter showed that the economy contracted for the quarter.
Consumer spending (or the lack of it). A couple of different reports came out this week that showed that the consumer (that’s you and me), who count for 70% of all economic growth in the country, have pulled back quite substantially. A couple of thoughts on that: There have been many studies done over the years about the wealth effect of both 401K’s and home values. When you have $500,000 in your 401K and $150,000 in equity in your home, you feel more inclined to go out and buy the new hot tub, take a nice vacation etc. But if your 401K is now down to $250,000 and your home equity is down to $1, you suddenly don’t feel so wealthy. When you don’t feel so wealthy, you aren’t as inclined to spend. It’s a vicious cycle.
Inflation (or the lack of it) - since we talked about what the Fed said about inflation, this is actually going to be more about what the Treasury is doing in terms of borrowing all of this money to bail out Fannie, Freddie, AIG…….. There is starting to be more and more concern about how are we as a country going to pay this money back and that is putting upward pressure on the borrowing costs for the government. Since the government is also Fannie and Freddie, that’s pushing mortgage rates higher. I think that the overarching concern about how much the government is borrowing is the main reason that even though the economic fundamentals would normally push rates downward, they have remained elevated.
The Bailout Backlash – there are a couple of things happening along this line: There are starting to be more and more people in the government and elsewhere who are questioning whether the bailout is working. We’re “giving” all of this money to the banks and they aren’t lending it out, what’s up with that? A couple of quick thoughts, not in defense of the banks, but in explanation: 1) if I’m concerned about my financial well being, and I’ve got the ability to get a major cash infusion that will help me make it through, am I going to turn around and loan that out in what could be a very risky lending environment? Nope. 2) if I take that cash and buy another bank with it, does that make me “too big to fail” so that if things get really bad, I know Uncle Sam is going to save me? Maybe. I’ve talked before about the nature of “unintended consequences” and I think this is one of them.
Another bailout issue that we’re seeing is the rising call for bailing out some homeowners who need help on their mortgages. There are a lot of people who are quite angry about the idea because they bought a house that was within their means and why should someone who was “reckless” get bailed out and they don’t. I’d like to propose a different concept instead: Let’s call it the Vanderwell Bailout Plan:
1. Every home owner who has paid their income taxes on time for the last 2 years gets $10,000.
2. If you are in good financial shape, what are you going to do with it?
a. Spend it – it helps the economy.
b. Invest it – it helps the markets
c. Put it in the bank – it recapitalizes the banks.
3. If you are struggling financially, that could help you get through a bad stretch so that you can make things work.
No question of who is worthy and who isn’t, every homeowner gets it.
What about those who rent? If you rent and buy a home before the end of 2010 (this isn’t going to end soon anyway), you can get a $10,000 Federal Tax credit which means you won’t have to pay Federal taxes for quite some time. Not an interest free loan like they have going right now, but a true credit that you can spread out over as many years as it takes to take advantage of the whole thing.
Would it solve everything? Nope, but it would be a much more equitable way to give the economy a boost than bailing out Joe but not Fred.
Oil prices - have you seen the prices at the pump lately? My wife filled up for $2.43 a gallon yesterday! That’s an awesome thing with the exception of the reason why. The reason that prices have dropped is due to demand destruction. The economies all over the world are shrinking and therefore we aren’t using as much oil.
Now a couple of technical changes that I’m making:
1. Starting next week Friday, I’m switching the way that I distribute my Mortgage Market Week in Review. Currently, it’s e-mailed to over 1400 people and it’s also put up on Straight Talk, Bloodhound Blog, and Mortgages Unzipped. Starting next week, I’m still going to be writing on the blogs, but the Mortgage Market Week in Review will be available only by free subscription to the e-mail newsletter. To subscribe to it, go to Straight Talk and in the sidebar on the left, there’s a spot where you can subscribe. When you subscribe, you’ll get a “opt in” confirmation e-mail from Aweber on behalf of tvanderwell@straighttalkaboutmortgages.com to confirm that you wanted to subscribe.
2. That’s the second change I’m making, due to the recent growth in the number of subscribers to my weekly e-mail, I’m switching the format and rather than getting an e-mail from me at thomas.vanderwell@53.com, you’re going to get it from aweber’s mailing service on behalf of tvanderwell@straighttalkaboutmortgages.com. Same content, same occasionally brilliant insights into the market, just some technological changes that will make it easier for me to get it out to you.
3. If you already get the Mortgage Market Week in Review by e-mail, you’ll get a confirmation e-mail probably on Monday or Tuesday which will ask you to confirm that you want to receive it in the new format. The e-mail will come from aweber’s mailing list service on behalf of tvanderwell@straighttalkaboutmortgages.com. Just click on the link to confirm and we’ll be good to go.
Oh, one other thing, as part of the upgrade of the technological features, I’ve changed the layout and design of Straight Talk About Mortgages. Let me know if there are things you like or don’t like about the changes. I wanted to keep it easy to read and I wanted to have a site where more than just the most recent post can be read without having to click on page after page.
I’ll continue to keep you informed, please let me know how I can be of help.
Oh, and rates are currently posted here.
Tom Vanderwell
Cell (616) 292-7559
tvanderwell@straighttalkaboutmortgages.com
For some common sense talk about the mortgage world, check out www.straighttalkaboutmortgages.com
Mortgage Market Week in Review
by Tom on October 24, 2008
in Market Musings, Mortgage Market Week in Review, banks
Here we are on Friday again. That means that it’s time to try to summarize what’s going on in the mortgage and finance world. I’m going to talk about a couple of main things: the economic fundamentals, some earnings reports and the “margin calls” that are going on in the equity markets.
The economic fundamentals that have come out in the last week or two have all been, shall we say, poor. Not just in the United States, but England, Asia and other places, the economic reports all show pretty solid evidence that we are either in or heading into (depending on where you are) a recession and that it’s most likely not going to be a short recession but more likely the opposite – a long and painful one. I’m not going to go into the details of the different reports because it would be too depressing.
Earnings Reports (or shall we say, loss reports?) I’m going to do something a little different this time. I’m going to give you the numbers and then later in the e-mail, I’ll tell you who they matched with. Here’s the numbers:
(oh and these are all just for the most recent 90 days).
Here’s the choices for the companies who made them:
Now for a few thoughts about what’s going on in the equity markets and how that has an impact on the mortgage and real estate markets. Here’s an overview of it:
1. The mortgage backed securities market is a highly leveraged market.
2. As approximately 5 to 7% (that’s right, it’s only 5 to 7% of all mortgages that are causing this problem) go bad, the value of the mortgage backed securities (also known as Collateralized Debt Obligations or CDO’s) fall dramatically. Since they are highly leveraged, the investors have to come up with additional cash, typically lots of it.
3. That is, in an oversimplified nutshell, what is causing the significant sell offs in the stock market and the bond market at the same time. Investors, typically hedge funds, are needing to raise cash and to do that they are selling everything.
Now keep in mind how bonds and mortgage rates work. They actually move in reverse from each other. When bond prices go down, bond rates go up and vice versa.
So, when everyone is selling bonds, that sends bond rates (and correspondingly mortgage rates up). Which creates the reverse spiral that we don’t need.
The way it’s happening right now:
I’m convinced that if the overleveraged problems that are in the economy and the markets right now were to “disappear” we’d see long term rates drop quite substantially. That would then encourage more people to step out and buy a new house. That would in turn improve the housing market which would increase the value of the mortgage backed securities (because less people would be “under water” on their houses). That would then reduce the need for people to meet margin calls and sell their investments.
See what an incredibly tangled web we have weaved? (Is that the correct grammar?) I’m not too much of a betting man, but if I were, I’d bet you that Treasury Secretary Paulson and Fed Chairman Bernanke and their staffs are currently working on trying to break that cycle. I wish them luck because I don’t know how to break it.
Now, did you guess who had which earnings (losses?)
I’ll continue to keep you informed, let me know if I can be of help.
