Recent Surge Improves Home Loan Rates!

(originally sent to subscribers on June 15, you can subscribe too by emailing dave@signetmortgage.com)

Home loan rates have been the subject of much consternation in Washington, D.C. these past 3 weeks. There is serious concern that the rate rise we have just experienced may derail the recovery people have been feeling, and been starting to see as more than just “green shoots” but real growth. Has it been a false start? I know here in Central OR, our green plant shoots had some serious late-May freeze that false-started them off the charts and we had to start over with greenhouse grown plants from the local nursery. The stock market has spent these last two weeks bumping heads against its 200 day moving average and a 944 ceiling on the S&P that has been tough to crack. Let’s take a look at LT interest rates and come back to recovery scenarios.

Thursday we tweeted when the Fr Mac number came out at 5.59% (see chart immediately below). We are betting this week’s number will be another 20 bps higher as it takes at least a week for this number to catch up with reality. In the large scheme of things, 5.75% is a great number. In fact, where rates had been closer to and often above the 10% range over the past 5 decades, it was welcome to be at a 50-year low in 2003 of 5.25%, just 50 bps below the present 5.75% area. (BTW – that is a nationwide average; we are still writing loans at Signet Mortgage at 5.25% and better so it pays to work with connected brokers who can shop for you.)

If you compare the two charts immediately above and below, you will see the delay I am talking about. The MBS number fell off the table on Weds May 27^th in the first week of what has been a torrent of LT Treasury and MBS debt issuances – a supply that has simply exceeded demand. (See the huge red candlestick – more of a dynamite stick – on the left side of this chart.) You can bet that the banks raised their rates immediately that day. Some banks reissued their rate sheets more than 5 times in a single day on May 27^th. Above, however, you could see the weekly average on May 28^th stood still at that 4.88% line. So the delay is in the weekly average charting, not the rates available. Following that logic, take a look at the large green candlesticks on the right side of this chart –they represent last Thursday, Friday and today’s early activity.

We continue in a float mode right this moment as the bond market is recovering from “Bond Flu” that gripped MBS for the past two weeks. We are watching it carefully. It appears there will be some relief this week from the supply and demand woes of late. The Treasury is taking a week off after consecutive weeks of issuing an average of over $80 billion a week. On the demand side, there are now hedge funds and bond funds stepping in to buy bargains in MBS where it seemed only the Fed had been buying before.

So, where is the economy headed Green Shoot guy? There are many scenarios to choose from and I am still with the W recovery team. Not that what we have been seeing isn’t real improvement, I still believe we will fall some from this point before we go into full bull market run mode again. We have seen the dollar weaken for weeks now and oil prices climb from below $45 to over $72/bbl. Gas prices have risen for 45 consecutive days to be at a nation-wide average of $2.63/g now. Interest rates have braced against the fear of inflation and impending debt loads. This fear is real and the fall back that higher interest rates may cause in our recovery will likely bring a bit of an easing in interest rates. This morning’s NY Empire State Manufacturing Index showed contraction again at levels much worse than expected. This is the first bad news to hit after a raft of good economic news through May got us to the point that sent the red sled down the hill.

Again, with today’s rates and property values available, we have all-time best opportunities sitting right now on a signing table near you. Signet has pipelines into the best available rates and we are watching the timing for floating and locking. We welcome your input and look forward to serving you, your clients, friends and family. Let’s make it a great week - Dave