Dennis' Mortgage Blog

When I came out of the gym this morning after swimming my laps (actually given my ability it is more like floating with movement) I was shocked to see the Mortgage Backed Securities (MBS) market opened up much higher than yesterday's close, a lot higher.  For MBS, and other bond type investments, higher prices means lower yields, or interest rates; so if you are in the market for a mortgage and hear, "the mortgage market is up" that is generally good news as it means rates are lower. 

As you can see from the chart, where green and up on prices means lower rates and is good for those looking for a mortgage, today the market started out at a 10-day high and stayed there.  Following a few weeks of semi-sideways movement, with some drop in prices and slightly higher rates, today the market broke out.

Why?

Four main reasons:

1) Federal Reserve Chief Ben Bernanke's comments yesterday that economy is in not recovering very fast and that it is a mystery to him why not.  The Fed downgraded their expectation for growth for the remainder of the year, and Bernanke's tone seemed to reflect last month's "What me worry?" press-conference.  It is apparent that the Fed is stunned because they have poured almost two trillion dollars into the economy in QE1 and QE2 and have no results to show for the effort.  Investors saw this as a sign that even when QE2 ends later this month and the Fed ceases to poor a couple of hundred billion new dollars into the economy that rates will stay low.

2) Jobs again were a leading factor in lower rates.  Initial jobless claims for the week were at 429,000, a big jump from the prior week's number and the eleventh week in a row over 400,000.  Typically unemployment claims are filed by the newly laid off, typically newly laid off individuals spend less than currently employed individuals.  Higher unemployment claims means less consumer spending, means less growth, means lower interest rates.

3) Oil prices spent much of the last few months over $100 per barrel.  Recently the price has dropped below $100 per barrel and OPEC announced they would not increase production to make up for what has been missing from market due to Libya and other "Arab Spring" unrest events that have reduced production.  Today the International Energy Agency announced that on instructions, er request, from the Obama Administration it would release 60 billion barrels of oil from emergency supplies and reserves.  As part of this 60 billion barrel flood of the market the United States will release 30 billion barrels from the Strategic Energy Reserve--oil supplies the U.S. has for emergencies such as a sudden shut off of all Middle Easter oil supplies.  Oil prices dropped, investors saw a possible relief in energy prices and therefore a bit of ease on inflation.  This is a rate positive event for mortgages.

4)  Budget talks between party leaders in the House and Senate and the Obama Administration have started to break down with some key Republicans leaving the talks saying they were going no where.  At stake is the debt ceiling for the U.S. Treasury.  If Congress does not vote to raise the debt ceiling the U.S. risks defaulting on bond payments come mid-August.  Before voting to raise the debt ceiling Republicans, who control the House of Representatives with the majority, are demanding major cuts in spending; I can't say from the budget because there is no budget the Senate not having proposed or passed one in over two years.  Without the hard spending cuts and reforms House Republicans are threatening to withhold votes to raise the debt ceiling and allow the deficit and national debt to grow.  While a minor mover on the mortgage rates, unrest such as this tends to see stocks drop and bonds improve.

A big day for news that impacts mortgage rates with virtually all of the news negative for the economy overall and positive for mortgage rates.

Short term we are in a choppy market, medium term we should see rates trend down, longer term unless we see some glimmers of growth we are in danger of seeing rates not only drop significantly lower but the whole economy and home values as well; a potential double-double-dip.

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118