Market Analysis

The market continues to deteriorate further.  Wells Fargo is currently updating rate sheets again so we will update our rate sheet shortly.  Below is interesting commentary published by Larry Baer with Market Alert earlier today which both comments on what is happening today but provides some optimism about the longer term prospects for rates (for those of you not planning to close for several months).  This is not to say that rates will go back into the mid to high 5's like they have been, but it also suggests that the climb will hopefully stop in the low 6's. Below the commentary we have pasted another 15 minute chart from Larry Baer's website.

from Larry Baer's Market Alert Commentary today:

  Commentary:  Mortgage investors are responding this morning to a speech Fed Chairman Ben Bernanke made to an academic conference on inflation-dynamics last night.  Bernanke played down fears about slowing economic growth and made it clear the Fed’s mission right now is to prevent the spike in world fuel and food costs from feeding into longer term inflation.  This morning Dallas Federal Reserve Bank President Fisher sang harmony with Bernanke’s inflation fighting melody – saying he would willingly accept weaker economic growth if it meant inflation pressures would remain in check.  Adding his voice to the anti-inflation chorus, Boston Federal Reserve Bank President Rosengren said that rising food and energy costs are still trickling through the economy, complicating the outlook for inflation.

  Mortgage investors heard the Fed’s tune loud and clear – and did not like the sound of it.  As soon as credit markets opened this morning the price of government bonds, notes and mortgage-backed securities tumbled (creating higher yields) as fixed-income investors of every ilk bought into the idea that central bankers are signaling a hike in short-term interest rates before the year is over – perhaps as early as September.  At this juncture – the fear of Fed action will likely make it very difficult for mortgage interest rates to move notably lower from current levels.  That’s the bad news.

  The good news is that once the Fed actually begins to tighten short-term interest rates the prospect for lower mortgage interest rates ahead will improve significantly.  I know that sounds crazy but hear me out.  The Fed will tighten short-term interest rates in an effort to reduce inflation pressure by tapping on the brakes of economic growth.  As economic growth slow the demand for capital slows as well – and mortgage interest rates stabilize before beginning a slow slide to lower levels.  The good news doesn’t stop here.

  Rising short-term interest rates will be strongly supportive of a stronger dollar on global currency exchanges.  As the value of the dollar rises the price of crude will begin to move lower.  I’ve read estimates that suggest a 10% improvement in the value of the dollar would result in roughly an $18 per barrel decline in the value of crude – a condition that would go a long way to brightening consumer and business confidence.  But that is not all. 

  A resurgent dollar will make dollar denominated assets (like government bonds, notes and mortgage-backed securities) increasingly attractive to global investors.  Current vintage mortgage-backed securities offer the highest quality together with one of the widest yield spread premiums over the 10-year Treasury note that has been available in years.  I think the combination of a rising dollar and a high-yielding, low-risk investment in mortgage-backed securities will prove to be highly attractive to foreign capital.  The inflow of huge new demand for mortgage-backed securities will be very supportive of steady to lower mortgage interest rates. Within six months of the date the Fed makes it first tightening move – start looking for the conditions I have just described to begin manifesting themselves in the mortgage market.

  Be patient … be disciplined … and play it by the numbers.

THE MARKET IS ALWAYS RIGHT! … YOU AND I ARE SOME OF THE TIME