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May 26, 2009
The question is, can the Federal Reserve Board keep rates on Treasurys down? The Fed has been buying U.S. Treasury notes in the past several weeks in order to keep a lid on long-term Treasurys, particularly the benchmark U.S. 10-year note. Bond prices and yields move in opposite directions. So more demand for bonds should drive rates down. A day before the Fed said on March 18 that it would begin buying Treasurys, the yield on the 10-year was about 3.0%. Following the announcement, bonds rose and the yield fell to about 2.5% - exactly what the Fed wanted. The Fed’s success was temporary, though. Even though the Fed reiterated it would finish purchasing $300 billion in Treasurys by this autumn, the 10-year sell-off continued until the yields crossed over the 3.0% mark. . "The bond market has sold off because the Fed isn’t changing the amount of bonds they are going to buy," said Brian Battle, vice president of Performance Trust Capital Partners. a fixed-income trading firm in Chicago. As we have indicated since the beginning of the year, there will be an on-going battle that will cause rates to fluctuate significantly. The slow economy and government support both will serve to keep rates down. On the other hand, the government spending to spur the economy will cause rates to increase. Every evidence that the economy is recovering will tilt the balance in favor of higher rates. Thus far, rates on home loans have been able to withstand this pressure because the government has also purchased mortgages, narrowing the spread between mortgages and Treasurys. However, this spread is approaching what it was before the financial crisis hit and any movement of the 10-year higher than 3.25% will likely also cause a corresponding rise in the cost in home loans. Stay tuned as the "tug of war" continues…
Current Indices For Adjustable Rate Mortgages
The federal government will take major steps to boost lending and prevent a meltdown in the commercial real estate market, representatives from the U.S. Treasury Department said Wednesday at the 2009 Realtors Midyear Legislative Meetings in Washington, D.C. The number of new loans for commercial properties sank 70 percent in the first three months of 2009 from a year earlier, the Mortgage Bankers Association reported. To loosen up tight lending, Treasury officials said they will include commercial mortgage-backed securities purchases in its Term Asset-Backed Securities Loan Facility (TALF) program. Previously, the department said total TALF assistance could amount to $1 trillion. “Brokers, Realtors, and borrowers are finding it very hard to transact in this market,” Seth Wheeler, deputy assistant secretary for federal finance at Treasury, told the group. “What we’re trying to do is provide a pull channel for financing. It will take time, but we hope we’ll see a return of liquidity.” While the Treasury officials did not provide specific timelines, they assured the attendees that they would act soon. “We understand how important the issue is,” Wheeler said. “We want to move as quickly as possible to form a policy response.” Source: Realtor Magazine After dropping for two years, home prices appear to be bottoming out, and any further declines would be an overcorrection, NAR Chief Economist Lawrence Yun told thousands of practitioners at the Realtor Midyear Legislative Meetings in Washington, D.C. The median national home price today is about $169,000, down almost 14 percent from a year ago and an estimated 30 percent from its peak. Today’s prices are justified by the fundamentals of the economy and may even represent an undervaluation, Yun said. Source: CNN/Money |
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The Treasury’s Struggle
The Markets. Rates on home loans were fairly stable again last week. Freddie Mac announced that for the week ending May 21, 30-year fixed rates averaged 4.82%, down slightly from 4.86% the week before. The average for 15-year fell slightly to 4.50%. Adjustables were mixed with the average for five-year adjustables decreasing slightly to 4.79% and one-year adjustables rising to 4.82%. A year ago 30-year fixed rates were at 5.98%. "Long-term mortgages have remained below 5.0 percent for the past 10 weeks as the U.S. Treasury and Federal Reserve (Fed) act to keep interest rates low through security purchases," said Frank Nothaft, Freddie Mac vice president and chief economist. "The Treasury purchased $136 billion in mortgage-backed securities through April and the Fed bought $740 billion through mid-May. In addition, the Fed purchased $115 billion in Treasury bonds since March of this year. Housing construction continued to decline, as total starts fell to the lowest level since the Census Bureau began its monthly series in January 1959. While single-family construction appears to be near or at a bottom, multi-unit construction continued to recede."
News reports that the federal government is backing away from its plan to permit eligible borrowers to monetize the first-time homebuyer tax credit are off the mark, a spokesperson for the U.S. Department of Housing and Urban Development says. "The technical details are still being finalized and will soon be published in a mortgagee letter and posted on our Web site," Lemar Wooley, a HUD spokesperson, told Realtor Magazine last week. Under the guidance that’s under development, state agencies and other HUD-approved entities would be able to provide short-term bridge loans that households could use to help with their downpayment. The loans would be repaid with the proceeds from the households’ federal tax credit. The loans were announced on the opening day of NAR’s 2009 Midyear Legislative Meetings in Washington, D.C., last week. In his announcement, HUD Secretary Shaun Donovan said guidance would be issued shortly. When the guidance is released, it is expected to cover eligible lenders and set parameters for loan terms and repayment. Source: Realtor Magazine Online