A Very Bad Day to be Betting on Low Mortgage Rates
Another bubble may have burst, this time with low mortgage rates.
May 27, 2009 -- DETROIT, MI - It's an unsettling feeling watching a market in free-fall. You watch it drop, drop and drop some more, wondering and hoping that it'll level off. When it doesn't, panic and paranoia creep in and your stomach starts to tighten.
I'm sure a lot of bond traders on Wall Street were going through this as one of the WORST days for Mortgaged Backed Securities played out. Take a look at the chart below:
(NOTE: this chart reflects MBS prices which are the inverse of interest rates.)
As if to set the market up like a pool hustler, the day started with a bit of improvement after a bad day yesterday. Then the market kept dropping and dropping and dropping, etc.
What's this mean for interest rates?
Well, you're looking at rates being ½% worse than they were at the start of last week, maybe even higher.
What caused the sell off?
It was an accumulation of factors plus mob hysteria thrown in for good measure. The government's auctioning off a slew of Treasuries this week, consumer confidence shot up last month and was reported yesterday, housing sales are up and the market was just nervous all this will lead to inflation.
The question is, is this a reset of the markets or will the next round of bad news drive rates back down? We also have the Fed to watch and see how team Bernanke will react to this. The Fed pledged 1.25 trillion dollars to buy MBS and keep mortgage rates around 5%. They've only used up about half of this amount. Will they go "all in" and blow the rest on a gamble to call Wall Street's bluff?
Stay tuned.
# # #
Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's spoken for HUD, written articles for the Financial Planners Association of Michigan and the Oakland Real Estate Investors Association, presented for the Michigan Associations of CPA's, has written numerous industry articles, and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com.
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This is the last thing we all want to hear about on Motorcity Connect, but WE HAVE TO hear about it and we have to be ready for what's around the corner with the refinance and purchase transaction roller coaster today! We have to be ready to diversify and deal in every market depsite what the rates give us and our clients.
As a Title Insurance Company we are affected by this as well in dealing with the interest rates rising in turn title orders defaulting and refinance closings deminishing as well as potential home buyers playing the waiting game. Yes, we have had an amazing 2009 here @ Franklin, but we have diversified over our 5 years and have been ready for what's coming around the corner at each point.
We are a TEAM in this process - Don't forget that along the way & that we are all affected when rates rise, lower, or stay the same or home values rise, lower, or stay the same from the Realtor to the Mortgage Company to the Appraiser to the Inspector to the Title Insurance Company...and beyond.
For those of you out there making a name for yourself, for those of you out there 'doing the right thing' and for those of you out there staying positive and growing despite what's been thrown at us - My hat goes off to you! Stay the course and I'll see you at the finish line (Closing Table)
Thanks & Good Luck,
Keith Stonehouse, Franklin Title Agency
http://www.franklintitleagency.com