Man, what a week (and this morning) that saw a lot of changes taking place, including this very post. First off, in case you missed it, Todd Carpenter has left Lenderama to take the SM helm at NAR and good luck to him on that one. As for this post, I had a great one nearly done when my computer crashed and I lost everything, so here is a remake and a special thanks goes out to Windows for forecasting what will happen in the future of the mortgage market as well. Beyond that, I love the ego boost I get when I make dead on forecasts and this statement from last week was spot on…
MBS pricing will likely break out of the current sideways pattern, with odds leaning toward rates moving higher, though you can expect the Fed to step up their buying if that appears to be the case.
That is exactly what the Fed announced within the latest Policy Statement released on Wednesday. Of course the media jumped all over that, with Jim Cramer leading the stupidity as he congratulated the Fed for driving mortgage rates lower, and many in the media are saying mortgage rates are heading to 4%. I certainly hope you are protecting your clients from this media blitz of misinformation as reality is quite different. For those of you that missed my interpretations of the reasons for the Fed’s move that I posted over at Florida Mortgage Daily and Florida Mortgage Report, let me restate them here, but first let’s recap the other week’s stories.
As the data played out last week, we saw that foreign participation in long term securities is diminishing with even the Chinese saying these investments suck. That can’t be good as China is the largest participant in this market. Data continues to show things are not as bad as expected and inflationary fears are returning to the markets. LEI and the Philly Fed both beat expectations, still showing a weak economy but one that may very well be improving before the year’s end. CPI was higher than expected and signaled deflation is not in the mix at the moment, and inflation may be creeping back into play. All of this will back up the forces that are trying to drive mortgage rates higher.
Big Ben has seen this happening and that is the real reason for the latest move by the Fed’s. The fact that they have more than doubled their commitment to MBS purchasing, bring the total up to $1.25 trillion, sheds light on this fact. The Fed doesn’t really want to drive mortgage rates down and they realize they will need to step up their MBS purchasing just to keep mortgage rates steady in the future. With market forces moving back in, trying to send mortgage rates higher, more money will need to be added on the purchasing side to keep rates from climbing, and who better to do that than Big Ben and his buddies. Of course, they have to throw some money into the Treasuries also or they would still be fighting a losing battle. Looking forward, you can see exactly what I have been saying for a while, the Fed is artificially manipulating the markets and propping MBS pricing, a move that is creating yet another bubble market, this time the “mortgage rate bubble”.
So where are mortgage rates headed this week?
Well, let’s first get into the data and events scheduled for the week ahead…
- Monday: Existing Home Sales (10:00), Treasury Bill Auctions (1:00)
- Tuesday: Charles Evans Speaks (6:00), Ben Bernanke Testimony (10:00), Treasury Auctions (1:00)
- Wednesday: MBA Purchase Applications (7:00), Durable Goods Orders (8:30), New Home Sales (10:00), Crude Inventories (10:30), Sandra Pianalto Speaks (12:20), Janet Yellen Speaks (12:30), 5-year T-Note Auction (1:00)
- Thursday: Dennis Lockhart Speaks (5:00), GDP (8:30), Jobless Claims (8:30), Timothy Geitner Speaks (10:00), Richard Fisher Speaks (12:00), Jeffrey Lacker Speaks (12:40), Gary Stern Speaks (1:00), Money Supply (4:30)
- Friday: PCE (8:30), Personal Income (8:30), Personal Spending (8:30), Consumer Sentiment (9:55)
As you can see, there will be many speeches this week that will be affecting the markets, but the biggest player will likely be the PCE report at the end of the week since it is the Fed’s favorite gauge of inflation. Is the Fed expecting this data to be inflationary in nature and that is why the announced the purchasing this last week? A very good question indeed.
As for the technical side of things, mortgage backed securities have retraced about 50% of their latest move, so they may be able to rebound a bit now. Stochastic indications are negative as we have seen a negative crossover and they remain in the overbought spectrum. With market forces moving toward the desire to drive mortgage rates higher, MBS will have to receive some favorable news in order to move lower, so I would expect mortgage rates to essentially hold steady this week for the most part.
The bottom line is the Fed will be buying, maybe the sole buyer at this point, and they will be doing their best to ensure steady mortgage rates with their “new money”. Market forces have been moving toward the higher mortgage rates side and who wins the battle will be the determining factor for the future of mortgage rates. For now, with deep pockets, the Fed will likely maintain steady mortgage rates unless data (or speeches) proves overpowering.
So the FED is buying up every MBS they can get their hands on and likely be easing funding on the purchase side too. That just leaves a few pesky things in the middle of the chain – like homebuyers and bankers. Maybe the Fed should just remove everyone from the middle, keep the homes and let people stay for free…. Be more stable. Ben Bernanke the communist.
Advice for First Time Buyers
A number of factors have led to the number of first time buyers purchasing property falling over the past year, and these factors include lack of mortgages, the effects of the global credit crunch, and falling property prices.
You need to bear in mind that there are many different upfront fees that you may have to pay out when taking out a mortgage, such as solicitor fees, mortgage arrangement fees, and a hefty deposit, and in order to work out whether you can even afford to take out the mortgage you need to determine whether you have the necessary funds available for the upfront payments. It is important to go through your income and outgoings thoroughly to ensure that you can comfortably afford the monthly repayments on the mortgages, as you could otherwise lose the property if you fall into arrears.
Also, as first time buyers you need to bear in mind that it is not just the mortgage repayment that you have to factor into your budget. You will also need to ensure that you can afford to pay bills, pay for groceries, and cover other costs.
I would agree that first time home buyers need to be careful to remember the other bills they need to pay, and not just what they can get approved for; that really is the key to the problem we are now having.
Advice for First Time Buyers
A number of factors have led to the number of first time buyers purchasing property falling over the past year, and these factors include lack of mortgages, the effects of the global credit crunch, and falling property prices.
You need to bear in mind that there are many different upfront fees that you may have to pay out when taking out a mortgage, such as solicitor fees, mortgage arrangement fees, and a hefty deposit, and in order to work out whether you can even afford to take out the mortgage you need to determine whether you have the necessary funds available for the upfront payments. It is important to go through your income and outgoings thoroughly to ensure that you can comfortably afford the monthly repayments on the mortgages, as you could otherwise lose the property if you fall into arrears.
Also, as first time buyers you need to bear in mind that it is not just the mortgage repayment that you have to factor into your budget. You will also need to ensure that you can afford to pay bills, pay for groceries, and cover other costs.