MORTGAGE RATES SHOULD FIND A TEMPORARY REPRIEVE

We have seen mortgage rates creep up these last few weeks. Rates are still historically low and offer tremendous value for those needing to purchase homes or refinance. However, we are seeing warning signs. Normally, fund managers exit bonds and buy stocks in a progressive fashion as they chase stock performance and have less regard for safety. We could have expected some increase in yields as stock values improved.

On the other hand, we have the Fed buying treasury bonds to provide a buyer of last resort to keep yields down. The most significant factor affecting current bond market performance is the vast amount of supply the US government needs to sell this year in order to fund our country's debt. The Fed prints money out of thin air in order to buy treasury bonds(so we sell bonds to ourself and pay with printed money). The effect on the dollar is harmful, bringing down the value of the dollar and leading to inflation. When bond yields rise, we are being warned of inflation to come in the future. Those buying our debt want a better return.

Back to the Fed: he needs to keep rates low so individuals and businesses can borrow and refinance debt at low levels. He needs to keep borrowing costs low for the US government. The bond market is vastly larger than the stock market. Expect the stock market to pull back in the next few weeks with a bigger decline to take place in late summer to early fall. The only solution to creating another bond rally is an engineered deflationary wave(i.e. another stock market crash).

Realtors: expect better sentiment to persist through the summer along with great rates. This is the time for sellers to get realistic and price their homes to move. The coming supply of REO will continue to put pressure on prices. First time home buyers are once again, one of the most prominent groups of buyers. There are excellent programs available in addition to government incentives.

MORTGAGE RATES UNDER PRESSURE

We are witnessing a sudden drop in bond prices with yields rising to uncomfortable levels. In the past, it was normal to see stock market fund managers sell bonds and add stocks once stock market rallies looked sustainable. Much of the recent rise in stocks has come too quickly on the back of news which has been spun into the "green shoots" story line. In fact, banks have been propped in order to complete secondary offerings. Mission is now accomplished.

The fed has been buying treasuries in an effort to keep mortgage and refinancing rates low. Now the fed is stuck between a rock and a hard place. I predict the stock market will pull back (and be allowed to do so) in order to find willing buyers of treasury bonds. Look for a tug of war in the next few weeks.

MORTGAGE RATES STILL UNDER 5% !

Mortgage rates have continued to stay in a narrow range of 4.5-4.75%. Home purchases are picking up and refinances have continued at a steady pace as homeowners take advantage of these excellent low rates. The fed is continuing to hold down long term rates by purchasing treasury bonds. My forecast remains unchanged : rates should stay in this range for the next few weeks to months. I am anticipating the stock market to retreat in the late summer to fall, at which time, bonds should continue a more vigorous rally which will lead to lower rates.

Consumer sentiment appears to be improving in the housing market. Going forward,the overall theme to note is that lower rates and the fed's support of all lending institutions should help spur mortgage lending and be supportive of the real estate market. There are incentives and new products available to encourage home buying. New products are also available for REO homes.
Realtors should be seeing more activity in the resale market as low rates and low prices create opportunities.