Why Are Buyers Continuing To Wait???

I found the below commentary quite interesting since many homebuyers are sitting on the fence. Are they sitting on the fence waiting for the "bottom" in interest rates and/or home prices? Unfortunately, one never knows when the "bottom" is until it has already occurred. Just like how we found out a few months ago that we've been in a recession for over one year! Most of these events are not accurately noted until after the fact. Just thought I would forward since rates AND home prices are ridiculously low right now. It's actually a "perfect storm" for buyers and who knows how long it will last.

Commentary: William O'Donnell, U.S. bond strategist at UBS securities hit the proverbial nail-on-the-head when he said, "Investors are reluctant to crank rates much lower -- knowing that behind Door #1 looms the huge beast of new Treasury supply." In a nutshell, he has described perfectly the current status of the mortgage market.

Though it has yet been formally announced, most credit market participants (including mortgage investors) are anticipating the Treasury Department will begin their massive round of borrowing by issuing $86 billion in short-term securities next week. Treasury is expected to follow those fireworks up by announcing plans to issue a record-setting $80 billion in notes and bonds the following week. The "so-what-factor" here is significant.

Uncle Sam can either print money, tax, or create a combination of both revenue generators to pay his obligations. Because he has this unique power Uncle Sam is considered to offer a "riskless" rate of return to global investors. His ability to generate essentially unlimited amounts of capital for debt service also means Uncle Sam has little concern regarding the rate of interest investors' demand. Whatever the required yield - he can pay it.

Much of the capital used to fund the mortgages you create come from investors who have the option to either invest in Treasury obligations or agency-eligible mortgage-backed securities. To successfully attract the capital away from Uncle Sam and into the mortgage market we have to offer investors a higher rate-of-return on their money. From this perspective it almost goes without saying that the endless bill being racked up by Uncle Sam's all-out-effort to restart the country's economic engines will almost certainly continue to mute any sustained effort by mortgage interest rates to move lower. Thank goodness the Fed still has a pocket full of cash earmarked specifically to support the mortgage market. Without their big checkbook - mortgage interest rates would likely be sharply higher than where they stand today.