Record Highs! Record Highs! Record Highs!
Everyday we consistently see our stock markets posting record highs. Is this a bull market? Do we keep flooding the capital markets with cash and buying and buying stock? Bottom line is something has to give. We can not have record high markets and artificially low interest rates. We just can’t. Stocks and bonds in a normal free market, have inverse relationships. When stocks rally, bonds sell off, when bonds rally, stocks sell off. Now we do have those intermittent days were we see stocks and bonds both heading in the same direction. Typically those are the days that investors feel there must be an incorrect valuation.
Now let’s talk about mortgage rates and our mortgage bonds/mortgage backed securities (what rates are based off of). Were are they going and how can we plan for the next few weeks and months? Right now mortgage rates are hovering at the 200 day moving average. That is called support. At this support level, we can expect one of two things. First we can get a bounce off of it and we can see our rates improve or we can see us break through it and then this once support level, is now resistance.
My gut tells me in the next week, stocks or bonds have to give. I personally think stocks are going to give in the short term, but that’s just me. In the long term, stocks will win. The economic data we have been exposed to has been lack luster. We have seen mediocre retail sales, tame inflation, so-so consumer confidence, higher trade deficit numbers, and besides one great jobs number, stagnant job growth. The market will do what the market will do. The numbers that have been really good, and which is very important to our industry, is the housing data. Housing is a huge part of our economy.
We have seen purchase activities pick up immensely, multiple bidding wars on properties, places selling in days and not months/years, and people are really re-investing in their homes. This type of activity is what our economy needs. As housing improves….and it is, you will see our rates go up in the long term. I think many mortgage bond buyers are seeing if housing is really improving or is this just a mini “bubble” happening right now. Only time will tell if this activity is here to stay or will it subside some.
All I can say, if we do get a little break on the rates on the low side in the next week, capture that business. The trend for rates in the short term looks good, in the long term, they will go up. They just will. Our economy is starting to move towards a pure free market.
As a loan officer, what do we do? Be ahead of the game. Since the crisis started around 2006/2007 we have had almost 4.5 million foreclosures nation wide. That is staggering. What that means is these borrowers, based on loan programs (on average you need to wait 3 years in order to buy again), are starting to trickle back into the market. Along with people downsizing (which are baby boomers retiring), and divorces (which have been more rampant in the crisis), you have many people who are coming back to buy homes. This influx of borrowers will keep housing boosted.
We just received some economic data. First we had the Consumer Price Index (CPI) which measures that average price of a fixed basket of goods for urban consumers. The number came in at -.4% and estimates were -.2%. This number is an inflation number. So inflation is tame. Then we had housing starts. Housing starts came in average at 853K in starts. Then we had over 1 million in permits. Lastly, and this proves our stagnant job growth, we had the initial jobless claims. The number came in at 360K which is up 28K from last week.
Mortgage Rates will open slightly better today than yesterday. Mortgage bonds are modestly higher this morning and stocks are flat. However, this proves that in the short term, something has to give.
Be aware of your market, educate your client’s, and let’s close some deals.
Josh
