Mortgage Market Week in Review and Whats Ahead

by benborden

Ouch! Mortgage bonds had a horrible week with the 4.5% bond falling from a high of 100.75 to a close of 98.75 a whopping 200 points. Looks like we will begin next week with significantly higher mortgage rates, apparently the economy has begun to see the light at the end of the tunnel and the worst is behind it according to all the “good news” out last week that caused the selling of mortgage bonds. A key question is are we out of the woods or is it just a little rebound before the downtrend continues?

Unemployment dropped to 9.4%, from the prior month’s reading of 9.5% - breaking a streak of 9 straight monthly increases. People still aren’t spending. Savings rate stands at 4.6%, down from May figure of 6.2% but still up significantly from prior publications of negative to 1% all the while wages and salaries have declined 4.7% from the prior year. Consumers have still have little access to credit as credit cards and home equity lines have all but dried up. The only thing that could stimulate the consumer would be a reversal of wages or lower taxes and with the Fed Printing Press working 24 hour days, 7 days a week we can be assured tax rates will increase…significantly is my guess. Just next week the Fed will be auctioning off another $75B. How high can taxes go?… funny you should ask!

Housing has been rebounding. On Tuesday, the Pending Home Sales Index came in at an amazing 3.6%, where only a 0.7% rise was expected. The National Association of Realtors reported that Pending Home Sales rose in June for the fifth straight month, fueled by low home loan rates and bargain home prices. Its important to note that this figure is on contracts written and not closed…. But regardless it seems the Fed’s buying of mortgage bonds to keep rates low, over $ ONE TRILLION worth, and the $8,000 “first time” home buyer tax credit does seem to be helping sales to firm. Can we say missing the boat???

Be on the look out his week for rates to bounce a little lower due to last weeks oversold conditions, with hand on trigger to lock. We are still on a long term down trend but still below all major moving averages. Hopefully the 4.5% mortgage bond can get above the 50 day moving average of 99.41 and the 100 day next at 99.90.

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