bostonbubble.com

[balor123]

I was just looking at spreads and noticed something funny.

[url=http://finance.yahoo.com/echarts?s=^TNX#chart7:symbol=^tnx;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined]10-year teasury[/url]

30-year Mortgage rates

These two are supposed to be highly correlated but the 10-year treasury is roughly the same rate it was 1 year ago (3.86% vs 4%) while the mortgage rate is considerably lower (6.2% vs 5.45%). I'm guessing that is entirely due to Fed intervention, a battle it seems to be losing. The spread is useful to follow because it indicates what will happen when mortgage rates aren't artificially depressed, which I thought would happen by end of 2009 but with the stock market improving could happen sooner. Looks like the fair market rate should be roughly 6 - 6.15% right now.[/url]

[mpr]

Are you sure the current spread is out of whack ?

A year ago was already after the failure of Bear Sterns, and
the credit markets were already behaving abnormally
(auction rate bond auctions were failing if I recall).

I would have thought the spread would be closer to the
average now than a year ago, but I haven't checked.

[balor123]

Maybe you are right I don't know. In any case, we know that if the rate of one goes up the other will as well and we have not only technical reasons to believe that it will continue going up (a pseudo-science that I don't believe in) but also sound logic. I walked into Bank of America today and noticed that they were advertising a 5.7% 30-year rate. Wow! Lots of Americans, mortgages or not, are becoming much poorer as the interest rate increases.

[balor123]

I suppose the Fed could give increasingly larger and larger credits to FTHB but that would have to be funded by taxpayers so there isn't a huge win. The nice thing about it, though, is that not every taxpayer owns a house at the moment so for every $1 homeowners will get through an effective home price they might only have to be $.1 or $.2 (the rest will be paid by current non-homeowners and more improtantly future homeowners who aren't yet old enough to buy a home but have to pay off that debt through taxes).

[nickbp]

Here you go: http://www.calculatedriskblog.com/2009/06/rising-rates-next-fed-meeting-will-be.html

[balor123]

Good timing. I'm seeing 5.7% already at the bank.