Dow lost just 36 points though...
Oil lost a little bit of value today as indications were released that we have a healthy supply and the dollar got some footing.
Surprised?
Mortgage bankers association let everyone know that applications are down. They are expecting less refinances in 2010. WOW...when rates go to 4.5% and so many people jump on that boat, you can bet they won't be looking for another refinance soon. There is however an expectation that the purchase applications will be up for 2010.
Robert Shiller, an economist from Yale University thinks that the prices of homes will go down again in 2010. (YES...he is the Shiller in the "Case-Shiller" index) See full article here: http://www.alertnet.org/thenews/newsdesk/N12200896.htm It is interesting to see the perspective that he is taking seems to be that the Mortgage Backed Securities purchase program that has kept rates low by creating a "demand" for mortgage bonds was simply prolonging the inevitable. His view seems to be that when rates go up and buyers back out of the market with the loss of the special programs: there will be less demand for homes. Less demand = de-valuation. In other words: when the feds pull out: the market will continue its decline where it left off.
My thought? I think rates will creep up on the fear of the Feds pulling out of the "purchase" program before again "normalizing" in the 5 - 5.5% range once the organic market takes over again.
Remember though that there are two things that will push the "organic" mortgage backed securities market propped up.
1. The 200 billion dollar "back stop" that the feds earmarked to pay out on bonds during the Tarp discussions. This was the situation: In order to pay out on bonds being cashed in the agencies need to sell more bonds. There was a worry that there would not be enough bonds sold to pay out on the maturing bonds and when the feds announced this "insurance" that investors would be paid out: rates improved and bond prices went up. As far as I can see: this is still in effect.
2. In theory (and the perception will likely be this among investors): The QUALITY of the mortgages that are being securitized is DRASTICALLY better. Gone are the securities tucked in there that represent "no income no asset" loans given to borrowers with credit that is marginal at best. EACH agency is AUDITING files like crazy to ensure that the mortgages they are securitizing are nothing but the best. This perception at the street level is leading investors to again feel a sense of reasonable comfort with bonds. Remember that a casualty of this whole mess was that very feeling of comfort was LOST.
If rates remain constant and the effect of the $8000 tax credit continues to "wear off" we may see a continued stabilization in home prices. By "wear off" I mean that within the first few months of that program we saw MOST of the people interested in getting that tax credit. After that: it has been more of a bonus to people who would have likely been approaching that point in their lives to purchase a home anyway.
The new spin-off of a credit to existing home owners is complicated by the ease of selling one's home and the tendecy for people who have owned a home for that long to be conservative enough that the risk of purchasing something outweighs the perceived benefit. Remember: the market is still just down to likely where their home was valued when they bought it...so there may really be no sense in "moving up" if they have to spend the same amount of money or more. (Thanks to refinance...there is really no incentive or much greater buying power with lower rates)
Naturally, the above is simply worthless though without a crystal ball. Who really knows what is in store for certain. Remember though: it is not the market that determines your results...it is something much greater than that.
Cheers,
Chad
