Mortgage rates are reprising past trauma, now matching the scope of the late 2010 sell-off, with the past two days matching the scope of Black Wednesday’s sell-off.
“Selling” in this case, refers to the Mortgage-Backed-Securities (MBS) that most directly affect rates. As MBS prices fall, rates rise. The faster this happens, the worse it is for rate sheets, and despite the month and a half of selling, the past two days have been surprisingly abrupt for lenders. Rate sheets have taken the most profound hits we’ve seen on back to back days (past examples were more concentrated on one of the two days).
Conventional 30yr Fixed best-execution is quickly up to a staggering 4.375%-4.50% (with no points) though we’d note that there’s even more variation between lenders as volatility magnifies the effects of different pricing strategies.
Today’s economic data had precious little effect on trading levels, adding to the sense that it’s going to take official employment data on July 5th, a change in tone from the Fed, or an unexpected tape-bomb style headline to convince markets that the Fed won’t begin curtailing asset purchases in September. While that continues to be the case, interest rate movements continue to be a risk.
We’d like to say “we’ve moved high enough, fast enough that we’ll probably be able to dig in and hold some ground here,” but that’s not safe yet.
Market participants themselves, let alone mortgage lenders, are still feeling out the post-Fed-Announcement environment. There’s no reason rates can’t go even higher just because they’ve moved so high, so fast.
rates are still cheap. Dont talk to me until they get > 8%.
The party is over!
What percentage of buyers have gotten knocked out at current rates and prices? A high enough percentage to change the market. It will be interesting to see what happens over the next few months.
Rates going up will surely slow the price rises in the housing market as buyers are able to afford less home with the same monthly payment.
IMO, this isn’t about the fed. It’s about Chinese banks. They’re in deep sh*t with serious liquidity problems, and they don’t seem to know what to do.
If they collapse, we collapse.
The top-quality properties will still draw a crowd, but the definition of top-quality just racheted up a notch or two.
http://www.mortgagenewsdaily.com/mortgage_rates/blog/313851.aspx
For those of us whose lives are intertwined by mortgage markets, these are dark times.
The 3-day sell-off just seen in MBS (or Treasuries for that matter) is as bad as I have seen, and that’s saying something considering I wrote the original coverage on ‘Black Wednesday.’
Whereas that movement was more of a growing pain with respect to the 4+ years of the Fed in MBS markets, the current move is more akin to death throes. That’s not to say that the benefits of Fed MBS purchases ended this week, but it is safe to say that this week was, by far and away, the most significant confrontation those benefits have had with their mortality.
Consider the ‘beginning of the end’ of a relationship as epic and storied as that of the Fed and MBS is a grave matter indeed.
There was no data or news to blame for today’s move. This is pure pain trade gone bad. This is a snowball compounded by uncertainty. This is the break-up letter we were afraid to get in early 2013 that surprisingly showed up on our doorstep in May.
This is the biggest falling knife in 10 years for bond markets and no one wants to catch it. It’s still falling.
For those of us deeply focused on mortgage markets for a living, it feels like we’re falling, still waiting to hit bottom, hoping it’s bouncy. Even if it’s not, hopefully someone has a parachute.
And even though the Fed sent the break-up letter, hopefully they’re still willing to talk it over. If not, the effects on the mortgage market may be a bit more ‘psycho ex’ than pundits seem to be expecting.
There’s nothing left to say. Try to detach from this ugliness and take care of yourself this weekend. We’re down, but we’re not out.
Ben’s abrupt move to end mbs buyout from 2015 to 2014 was way too sudden. 20% of the economy is tied to real estate, how do you hit 5-6% unemployment without having a blossoming real estate market. How do you have a blossoming real estate market, with a 1% move in rates in 30 days.
When my parents bought their first house in the US in 1980 the rates were around 18%. I was a kid and even I remember those times!
Interest rates have been falling since 1981. For 32 years we have enjoyed a bull market in bonds. Lower interest rates that helped the economy in so many ways. Did anyone in their right mind think the party was going to last forever? Increasing interest rates was just a matter of time especially considering the debt we have built up in this country. The bond buying program known as QE should have ended by now. The federal reserve is a day late and a dollar short. The bond market just pulled the rug out from underneath them this past week. The federal reverse is out of touch in my opinion. The “V” shape path that is happening in the bond market with rates spiking up so fast is finally signaling end to 32 year decline in interest rates. The big question is when we build a base side ways when rates stabilize what happens with the next leg up in interest rates? Everyone should follow this next leg up in interest rates. I believe the psychological impact from rising interests will be a problem in the future. Especially for people who can only remember the last 10 years or so.