Is it only the blogs that noticed a huge spike in interest rates over the last couple of weeks?
Stuck inside these four walls, sent inside forever,
Band on the Run — Paul McCartney and Wing
One of the advantages of reading topic-specific blogs like the IHB is that you find out about things before they reach general public awareness. For instance, last week, there was a sudden and dramatic rise in interest rates. Mr. Mortgage has written extensively about this and its ramifications in posts: 5-28 – Potential Consequences of 5.5% Mortgage Rates, 5-29 – ‘The Day After’ the Interest Rate Spike , 6-5 Beware Real Estate False Bottoms (Link to 69 page PDF file.) Some other bloggers have been on the case including Calculated Risk: Rising Rates: The Next Fed Meeting Will be Interesting. For the most part, the mainstream media has not been covering this story and its important ramifications.
I had the following email exchange with a mortgage broker:
bids, sometimes over the ask. Do you think this phenomenon will stop due to the
Here’s how I think it’s playing out – from a cynics perspective.
Timmy G went to Beijing for a dressing down. Our Chinese Overlords
(OCO) are not going to invest long term at sub 3% rates. The short term
rate auctions last week went well, but next week comes a 3y/10y/30yr
auction that was likely to be a disaster. Timmy convinced OCO that if
the US floats rates to the upper 3’s – as they are now – that OCO
should invest. Next week you’ll either see a great Treasury auction or
a crappy one. If OCO buys a bunch, mortgage rates which are currently
way oversold will settle into the upper 4’s, low 5’s. If the auction is
a steaming pile, 6.0% mortgage rates are on their way.
That said though, of the 1.2t the Gubmint is committing to spend on
Mortgage Backed Securities, they’ve only spent 500b. A TARP’s worth of
ammo is still out there.
I think the above observations are on the mark.
We know there are a number of properties going to hit the market due to the pent up supply of the foreclosure moratoria. The price levels we will see this fall and winter will be influenced by the amount of supply, but it will largely be determined by the terms of financing and in particular mortgage interest rates. If rates go back up to 6% or higher, prices are going to fall a great deal. If they can be maintained at 5% or less, the drop will be much more subdued. We will see what happens.