Dennis' Mortgage Blog

An axiom of investing is bad news is good for fixed investments, like bonds and Mortgage Backed Securities (MBS) and bad for more volatile investments like equities, or stocks.

Not so much the case lately as Californians rushed buy iodine pills to stave off radiation clouds that were cover the Golden State from Japanese nuclear reactors.  Panic was/is abound on social media sites as Cyber Chicken Littles posted everything from "The China Syndrome" to some blogger in Reno predicting half the planet will be wiped out when the three core reactors in Japan fuse and explode, or something similar.  This type of news typically helps mortgage rates, and it did for a day or two.

While the rumors and speculation has kept the Japanese reactors news cycle prolonged, what has been under reported is the massive burden on Japan's fragile economy due to the earthquake and tsunami.  Japan is a few years from being completely underwater on its national debt.  The cost to replace destroyed infrastructure will hasten the nation's fiscal insolvency without some drastic measures.  The manufacturing sector has been greatly effected hurting jobs, income, tax revenue and consumption of domestic and foreign products.  Radiation has impacted some food supplies and raised concerns for any Japanese exports further hurting the economy.  The impact of the Japanese economic contraction as a result of the natural disasters has been met with an underserving shrug by investors.

Domestic housing markets are struggling nationwide.  Lack of reaction to such news in the historic fashion of "oh no we are going to get double-dip recession in housing and our economy, let's invest in bonds" leads one to believe that investors no longer consider the housing markets as a significant sector to the economy; or they feel the housing sector has hit bottom and going any further below decks will have no more impact on the economy.

War planes and bombing typically create uncertainty and a flight to bonds for investors.  In the short term the spending needed to support military action has a positive effect on my companies and sectors, but in the long term the planes, missiles and bombs need to be paid for by taxpayers.  In our case, and Europe's, taxpayers are overburdened by debt and interest payments already.  Increasing the load should send stocks down and bonds up.

We are in backwards world the past several days as stocks rode a three day climb that was the highest three day increase in six months.  After struggling and breaking through a strong level of resistance at 102 basis points Fannie Mae MBS have dropped below the 102 mark and have given back hard fought gains.

Will markets return to "normal" reactions to world and domestic events? Will "bad" be good for mortgage rates again in the near future?

Up is down and down is up.  Until some sort of sense is made and clear direction shown by investors and the markets I strongly suggest locking in your mortgage rates as soon as you are able through the close of your escrow period. 

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