Just got back from another all-nighter from Brazil, which has become somewhat of the “norm” for me. Likewise, we are seeing much of the “norm” in the mortgage bond market at the moment.
Last week was rather interesting to say the least, but certainly not unexpected. Mortgage rates managed to edge out some nice gains, primarily on the heels of the Fed’s Policy Statement which is issued simultaneously with their rate decision. I have always stated that the Policy Statement is more important to mortgage rates than the actual rate decision, and this time was no different, getting mortgage backed securities to rally on the news the Fed will keep buying up mortgage backed securities. That news, even after some correcting, brought mortgage rates down another 0.25% this week.
But the Fed wasn’t the only news. The Big 3 auto companies finally got the bailout, though less than what they really wanted. The total bailout amount that President Bush allowed through the TARP was $13.4 billion with Ford saying it hoped not to tap into a credit line. More money would be offered in February if need be. And with inflation apparently in check, at least based on the latest CPI data, mortgage rates do not seem to have an enemy right now. Initial Jobless Claims are still running high and the economy still appears to be slowing. All good news for mortgage rates.
So what does this week hold? We have the real inflation report coming up Wednesday, the PCE (Personal Consumption Expenditures Index). Beyond that, there are a few other sets of data slated to be released, but the real issue will be the potential of increased volatility due to the shortened trading week as we celebrate Christmas. Here is the breakdown of the data scheduled this week…
- Monday: Nothing
- Tuesday: GDP (8:30), Chain Deflator (8:30), Existing Home Sales (10:00), New Home Sales (10:00), Consumer Sentiment (10:00)
- Wednesday: PCE (8:30), Initial Jobless Claims (8:30), Personal Income (8:30), Personal Spending (8:30), Durable Goods Orders (8:30), Crude Inventories (10:30)
- Thursday: MERRY CHRISTMAS!!!
- Friday: Nothing
As you can see, the big day will be Wednesday, with a multitude of data coming in which includes the PCE. Of course, news can also shake the markets as well, just as it has in the past.
Looking at the charts, we see mortgage backed securities trading in a fairly narrow range that Wednesday’s data could break them free of in either direction. Stochastic indications still show an overbought condition, but that hasn’t stopped mortgage bonds in the recent past as news and data have managed to help them rally nonetheless. But we do have a problem.
Mortgage rates are now at the lowest any of us have ever seen, except a few maybe, since they are now at the lowest level in 50 years. The problem is that the latest moves in mortgage backed securities have been mostly due to the Fed and the Treasury (Bernanke and Paulson) “propping up” mortgage bonds with promises to be the buyer of last (or is it first?) resort. With an artificial move in mortgage bonds, the government’s latest attempt to boost the housing market through lower mortgage rates, we have essentially created a “mortgage rate bubble”. As such, lenders will be pricing in “hedges” and any moves lower for mortgage rates will most likely be minimal at best.
Sure, we may see mortgage backed securities continue their rally, but what will be the ultimate cost in the long run? With increasing risks of a bubble bursting, I don’t think mortgage rate pricing will see much benefit, if any, from any further movements higher in mortgage bond pricing.
So what are rates going to do this week? How long can we expect them to be low.
Mike,
I am expecting rates to remain fairly steady or tick up slightly. Wednesday will be a big day, but from my viewpoint, even if mortgage backed securities improve, you will not likely see it on the “rate sheets”, at least not much.
So what exactly is the benefit of reducing rates and providing bailouts so extraordinary? I mean, this new AP report says that the banks refuse to explain how they’re spending all the TARP funds. End of the day, if all of this just ends up as a temporary’ bubble’ then that’s $700 billion down the drain, not to mention the adverse effects of low rates.
i will be intresting to see what happens in the next few months. Currently it is not in most banks best intrest to do loans
I think fixed morgage rates are better than the adjustable ones due to their vulnerability to interest rate hikes. The current mortgage market does looks interesting.
Ciao and greetings from Italy, I am Mario a Realtor from Rome, grazie for posting such interesting information, for me is appropriate as now the Real Estate thinking is the same similar situation in Europe and indeed very relevent to the Real Estate at this moment Market here in Italy.
Hopefully the rates will continue to slip down. I really think if they do it could shorten this correction we are having. I am pretty happy. Locked in 4.75% for 30 year fixed jumbo loan
That’s great news Jeff in Hawaii – congrats!
Most of the news out this week was bad (not necessarily bad compared to expectations) and the stock market didn’t decrease too much. I hope that means we’re close to a stock market floor, but I doubt it
Hopefully that mortgage bubble never pops.
@Jayson – I think we have seen the bottom of the stock market, but I definitely think we are going to test those lows again.