Another bond-market meltdown yesterday has mortgage rates knocking on the door of 5%.

The mortgage market is similar to gasoline – prices shoot up instantly but are very slow to come down, if they come down at all.  At this point, it would take disastrous economic news to get us back to 4% or under:

Some of the ramifications:

  • Buyers will be more critical, meaning that borderline (non-superior) properties that sold during – and because of – the frenzy, will be left behind unless priced aggressively.  Some who are thinking about listing their home for sale will give up before trying – keeping inventory tight. Sold prices will be choppy because some buyers will overpay.
  • My guess is that the number of NSDCC sales will hold up.  Now that the selling season is clearly over, look for more price reductions and a scramble to the exits by sellers who have been bluffing on their list price, hoping to get lucky the last 1-3 months.  There will be plenty of OPTs that won’t lower, and be left high and dry.
  • Jumbo rates will probably rise, but if they keep close to conforming rates, we’ll have the answer to the question – how do we terminate Fannie/Freddie?

Next week we’ll get to see how ineffective the Fed is at talking down the market, which could unravel things further.  I loved Rick Santelli’s remark on how the market is doing all of the heavy lifting for the Fed, and “the taper” is here:

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