Mortgage Market Update

by Robert D. Ashby on July 21, 2008

This time, I am in Washington, DC, another appropriate place for this week’s update (no, I don’t plan this ahead of time).  With the government’s own actions being one of the chief causes for mortgage rates climbing, we can expect more of the same on the way.

Inflation is the bigger fear these days and that is partly due to lower rates.  It is also due to the continued devaluation of the dollar and the promise to keep “creating money” to bail out Freddie Mac and Fannie Mae, all the government’s doing.  The Federal Reserve issued new rules regarding Truth in Lending (Reg. Z), and managed to harm the consumer through consumer protection, but that is another story.

Last week saw the pattern in the bond market turn extremely ugly, and fast.  The week started off nicely as I mentioned it would, with the bail out plans for Fannie and Freddie, but then reality set in.  If you remember, I stated the data was skewed due to tax rebates, and Retail Sales wreaked of that, coming in below forecasts.  That story could not overcome the PPI data, which rose at the highest year over year rate since 1981.

Then came more confirmation that reality sucks.  The CPI report was released showing its year over year rise was the highest since 1991, coming in at 5%.  You couldn’t get around these “feelings” by hiding in the “core” reports as they were higher than expected also.  So, as inflation is letting itself be known, bonds are falling with the aerodynamics of a greased brick.

Looking to this week, more of the same can be expected unless we can quench inflationary fears.  Bonds have fallen below their lows of last October 17, so the downtrend is firmly in place.  There will likely be a correction of sorts during this week as bonds are oversold at this point.  Here is the breakdown of economic reports…

  • Monday:  LEI (10:00)
  • Tuesday:  Nothing
  • Wednesday:  Crude Inventories (10:30), Beige Book (2:00)
  • Thursday:  Initial Jobless Claims (8:30), Existing Home Sales (10:00)
  • Friday:  Durable Goods Orders (8:30), Consumer Sentiment (10:00), New Home Sales (10:00)

The only “big” report is the Fed’s Beige Book, but that doesn’t mean the others will not play an increased role this week.  I haven’t looked at all of the Fed speak scheduled yet, but I imagine they will be out moving markets as well, in their attempts to calm the markets.

According to the charts, bonds are of need for a correction, or a “dead cat bounce”, so there may be a brief time for floating this week, but locking will be in order for most of it.  Consumer Sentiment will likely push bonds higher as I am guessing no one “feels good” right now.  So, this week will be loaded with more action and entertainment for those of you following quotes in real time, maybe even spurring more “false” float (and lock) alerts from your sources.

Take heed, as education is the best tool and reliance on others can prove costly.  With that in mind, I am writing a book that can help you analyze the markets better and will provide more details once I have a publishing date set up (next month?).  Until then, feel free to check out my own market analysis at Florida Mortgage Daily.

  • Robert, I want to get your thoughts on something. Today's WSJ has an article showing that the percentage of subprime mortgages entering the foreclosure process is rising. What hit me is that the percentage number is 4%. To me that doesn't seem that high. I also heard an economist speak last Wedensday and he showed how consumer confidence is lower than most if not all of the economic indicators. He feels that there's no question the economy is flat, but he just doesn't see us in a recession right now.

    Furthermore, he feels that the media is so focused on how bad everything is (surprise, surprise) that the general population believes it and that's what's driving everything down. Obviously, it's more complicated than that but it seems to me that the media reports and we believe and right now we're believing things are worse than they are and it's all coming to fruition. I'm interested in hearing your thoughts or anyone else's who's reading this.
  • Rich, Great question or Statement, I agree with you, when it comes to the media and the dome and gloom. we as a general population do listen to the media and if its really not bad now it will be because we are telling ourselves it is. in many ways not to get too deep but iti si very mcu like the Law od Attraction. what we think about comes about and what is on Everyones mind? It is not too late to turn it all aound but you woul dneed to get theMedia involved and frankly I jsut dont see that happening.
  • I couldn't agree with you more on the law of attraction. Like Earl Nightengale used to say, "We become what we think about most." And that my friend is a separate blog in itself!
  • Rich,

    The media is out to sell ad space, subscriptions, etc. it is as the East India Trading Company (Pirates triology) say, "just good business". We know what happened in the last episode, right?

    Fear sells and thus the media will focus on fears most often. As for a recession, if we are in one or will get one, it won't be that bad in all likelihood. That being said, inflation will likely get worse due to government actions. I wish they would stay out of it, but we are in an election year, so that won't happen.

    I wouldn't mind seeing a recession so we can all just move on and let the cycle complete itself. But for now, I don't think we will see much worse than we have, except for on the inflation side.

    VA,

    You are right in that Americans allow themselves to get swayed by the media, hence the term "herd mentality" and why you should move opposite the herd.
  • Thanks Robert. You are aboslutely right about the recession - let's just get it over with if it's going to happen. I remember Jim Rohn explaining how simply the economy works: "In the 600 years that we've been keeping records, it goes like this: First expansion,then recession. Then expansion and then recession." And that's about as simple as I've ever heard.
  • True that they should just bite the bullet and get past it. Rather than finding ways to fight from getting into a recession, better if the Fed and Congress and the Treasury would just focus on finding ways to rebound 'after' the problem.
  • At times, it's amazing how misinformed the media is; I often wonder who (if anyone) is feeding the news agencies the line of doom and gloom they're handing out to the public. It almost seems as if there is some sort of competition going between them all to see who will be first to get the public at large to bolt and run in shear panic... Which, at this moment, they're doing a fairly good job of. I've NEVER been a fan of censorship, however, during times like we're having now where the media continuously turns the worst case scenario into current reality and in turn pushes may of our markets into a frothy, rabid, panic frenzy, our government should figure out a way to tell them to keep their stupid, uneducated yappers shut!!
  • A mortgage is a guarantee of a property to a lender (the one who provides the mortgage) as a security for what they called the mortgage loan. While mortgage itself is not considered a debt, it is because mortgage is the evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, under the certain condition that this interest will and should be returned to the owner of the real estate when the terms of mortgage have already been completed or satisfied. It is same as saying that the mortgage is a security for the loan that the lender makes to the borrower.
    Claiming a mortgage short sale in California for example, is seen as the standard method and definitely perceived as the most affordable way of achieving lands by which individuals have the chance to purchase any residential or even commercial estate without the need to pay the full value of the land immediately.
  • I agree with Ling. They need to be focused on the rebound after the problem. If everyone would have stayed with the fixed rate refi a lot of these problems would be gone.
  • Bad credit loan
    cklimen: I couldn't have said it better myself. When I read your post it was as if you were reading my thoughts!!!

    Media has gone out of control and not just with local news, even the international news that you see seems so over exaggerated! They are trying to push the idea of "everything is going down" - "recession" - "recession" and then some more "recession", I mean oh my God, they have got to stop with this torture. We already have our lives, work, families to take care of and then when you wana see what's happening in the world, you feel like throwing your TV out of your window.

    I tell you, I enjoy watching Tom and Jerry more than watching News channels that broadcast panic 24/7!
  • Ling,

    It certainly would be nice, but won't happen, especially in an election year. More screw ups to come like the new housing bill which has some real dark sides hidden within and will get crammed down our throats very soon.

    cklimen,

    Media sells fear because people (advertisers and subscribers) pay for it. It would be nice if their reporting was more in touch with reality, but there is an up side to their ways. Traders can make tons of money off their reporting.

    Fixed Rate Refi,

    I disagree with your statement regarding everyone needing to be in a fixed rate. ARMs are very beneficial to those who use them properly and not do stupid things, like qualify for a home they shouldn't be in. The real problems came from the misuse (and some abuse) of loan programs, not the programs themselves.
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