Friday July 1st, 2011 3:10 pm ET
By John Sauro
Rates Move Higher As Anticipated
Last week I warned about Gambling away and holding out for a lower rate, when locking into what was available meant guaranteed savings.
Well, the train has left the station, at least for now. Rates moved higher in just a few days. Hopefully, we will see some recovery for a brief period, pushing rates close to where they were. Bonds are down another 25 basis points as I write this.
In all, the 4 percent Bond has lost 144 basis points this week alone. The 30 Year Fixed Rate moved higher by .375% to .50%. The Bond fell below the 25-Day and 200-Day Moving Average and now rests above the 100-Day Moving Average.
One reason for the move higher is due to the end of the Fed buying Bonds (QE2) and comments from Dallas Federal Reserve Bank President Richard Fisher who said, It would not be “Unimaginable” for the U.S. economy to grow 4 percent in the second half of this year. That’s more than twice the tepid 1.8 percent rate seen in the first quarter.
Inflationary comments like that are the arch enemies of Bonds.
Where is The Bottom?
Many are wondering if the Real Estate market has found a bottom and others wonder if Mortgage Rates have found the same.
I believe that it is possible that the real estate market may have found a bottom. I say that with great caution, as the one thing that can cause real estate values to drop further is the actions or lack thereof by government officials with regard to over regulating the lending markets.
With the end of QE 2 upon us, our government will no longer be shoring up the bond market by buying bonds. This will result in mortgage rates rising as we saw this week. Once mortgage rates climb by one 1 percent or more, the would be home buyers that have been sitting on the fence will finally make their move, fearful that the train is leaving the station and they will miss out on some of the lowest mortgage rates in history. Theoretically, there should be a rush to buy. Now, if the congress can repeal some of the over burdening regulations placed on lenders, then lenders will be more willing to lend and maybe we could see the beginning of a recovery in real estate.
Lower Jumbo Loan Amounts
Fannie Mae and Freddie Mac, the private mortgage lending entities under government conservatorship, are set to reduce their maximum conforming loan limit from the current $729,750 to $625,500 on October 1st.
Some lenders have already reduced their loan limits to $625,000. So if you need a loan amount in excess of the new limit, I suggest you get moving ASAP.
Economic News
Fed’s Massive Stimulus Program Had Little Impact on Economy: Former Chairman Greenspan
The Federal Reserve’s massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.
In a shocking critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.
“There is no evidence that huge inflow of money into the system basically worked,” Greenspan said in a live interview.
“It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion,” he said. “Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1.”
Spring Home Buying Helps Boost Home Prices in April
US single-family home prices fell modestly in April from a year ago, but edged higher from the prior month, pointing to signs of stabilization in the battered housing market at the start of the spring buying season, a closely watched survey said Tuesday.
The S&P/Case-Shiller composite index of 20 metropolitan areas fell 0.1 percent on a seasonally adjusted basis. A Reuters poll of economists had forecast a decline of 0.2 percent. On a non-seasonally adjusted basis, however, the index rose 0.7 percent, its first advance in eight months, the report said. “The seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season,” David Blitzer, chairman of the index committee at Standard & Poor’s, said in a statement.
Pending Home Sales jump 8.2% May, well above the -0.6% expected.
Consumer confidence slipped 58.5 in June, the lowest since November 2010, according to the Conference Board. Economists polled by Reuters expected a reading of 60.5.
Jobless Claims Fall Less Than Expected, Down 1,000 to 428,000.