Mortgage Rates moved lower as Mortgage Bonds Rallied strong after Wednesdays Fed meeting pushing Mortgage Bond’s up $2.00 to a new high of 103.65. The Fed said it will switch from buying short term U.S. Debt to longer term debt, hoping to move rates lower.
However, if you tuned into the Kathleen Hays show on Bloomberg Wednesday, you would have heard me say that I was concerned that the Fed’s new “Operation Twist” plan could have the same reaction that the Fed’s “QE2” plan had, which was that it increased mortgage rates rather than lower them. Click here to listen to the show
“Come on Baby Let’s Do The Twist” *Chubby Checker 1960.
So what do you think happened on Friday after the initial knee jerk reaction on Thursday? You guessed it, Mortgage bonds started to sell off and mortgage rates adjusted higher. Could this be due to a bit of profit taking from investors? Maybe, but the closing technicals in the chart below suggest otherwise. The 3-day pattern is very close to an “Bearish Evening Star”, which is a major top reversal pattern formed by three candlesticks. The long red candle on Friday confirms the reversal pattern. See chart below.
Enough with all the technical lingo. The bottom line is that this may be a repeat of what happened the last time the Fed tried to stimulate our economy, and we all know it did not help.
Many industry professionals are saying lenders rates do not reflect the gains in the Bond Market. This should come as no surprise, as there is no excess capacity in the lending industry. Prior to Wednesday’s sharp rise in Bonds, lenders could hardly keep up with the volume presently at hand, so Banks will be very slow to adjust Mortgage rates lower. Quite frankly, I think anyone who is considering home financing for buying a home or refinancing would be making a mistake if they didn’t take advantage of these rates. Holding out for lower rates can get very expensive, for there is a lot more room for rates to move higher.
Click on Imge to Enlarge Chart
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