I thought you might find this of interest and remember “It is a great time to buy!”
Mortgage Bonds have traded wildly up and down over the past six days. So if you like volatility, this market is for you. Mortgage Bonds are now trading lower after this morning's Durable Goods release, which was reported well above expectations. It is known that, the Durable Goods Report is a volatile one, but the 5.2% reading was far above expectations of 1.2% and could signal that business capital investment is picking up or paint the picture that the economy is not as bad as previously thought. This translates to even more guessing about the Fed's decision tomorrow. Will it be a cut of a quarter or a half percent?
The consumer is still feeling pretty confident as Consumer Confidence for January was reported at 87.5, which was stronger than expectations of 87.0. Adding further strength to the report is an upward revision to December's reading from a previously reported 88.6 to 90.6. This morning's stronger than expected report has to raise some eyebrows at the Fed, which starts their two-day meeting today.
The Fed’s interest rate decision and Policy Statement is set for release tomorrow afternoon at 2:15pm ET. At least two former voting Fed members see a half point cut to keep the markets from going back into the sharp decline we had seen just last week. And the futures contract, which is not so good at predicting longer term Fed moves, but very good at the near term move, is pricing in an 86% chance of a 50bp or half percent cut...we see this scenario playing out as well.
If the Fed does cut by 50bp - the long term picture may not be so good for Mortgage Bonds. The Fed has already cut 175bp since September 18th, bringing the Fed Funds Rate down to 3.5% from 5.25%. And don't forget the 50bp cut in just the Discount Rate back in August. Add in the President's Stimulus Package and another 50bp cut tomorrow and you have a whole lot of ammunition to juice the economy. Remember that it takes 6 to 9 months for the effects of a Fed Move to be realized. And we are barely 4 months past the initial Fed cut. If inflation flames arise, bond prices will suffer later, as the fixed rate of return they generate must yield a number to compensate for higher inflation.
And in watching many so called experts parade in front of the news cameras this morning, it was funny to hear some of the comments. An economist from S&P said that most mortgages are priced off the 10-year Note...scary. Another said the Fed's recent cut (exactly one week ago) has had no effect on housing. Again, this shows how little understanding these individuals have about the way our business works. Do they really think that people see the Fed cut, get in their car, buy a home, get a mortgage, and close within a week?
Note the Floating Bias today - this does not mean to take your eye off the ball as we are already seeing a decline in MBS prices. Watch the windows; I will alert you if things get nasty. This is a good time to get the message out to your clients, who may be waiting on rates to drop further. As always, loan applications never peak at the lowest point for rates...they do so when rates start moving up and clients get off the fence before the train leaves the station. Warn your clients of this common error. It is wise to have your clients in queue, especially those above $417k, but below $625K. This way they can pounce on the lower rates once the conforming limit is raised.
Kathleen ReinertHome Mortgage ConsultantWells Fargo Home MortgageMAC S4153-02020369 N 59th AveGlendale, AZ 85308623.445.2297 Tel602.620.3105 Cell866.254.1668 Fax866.207.6731 ext2297 Toll Freekathleen.email@example.com http://www.kathleenreinert.com