This morning saw the highest mortgage rates of the year, and we aren’t done, said Bryan McNee, senior bond analyst for MBS Authority.
Yesterday’s sell-off was not a knee-jerk reaction and the market is not going to bounce back in three or four days, he said.
Bernanke’s announcement that the Fed soon plans to make lower levels of monthly bond purchases saw prices tank yesterday. The market rebounded today on a weaker than expected initial jobless claims report, but reversed course once again on a stronger existing home sales report.
“We are at a point in time in the industry when people who own MBS fully expect the number one player to pull back, which will crush mortgage rates,” McNee said. “The only thing that can help is if we get a surprise with some weaker than expected economic data. We aren’t getting that. Even if we did, we still only expect MBS to pause for a brief respite before they start another downward trend.”
We may be seeing increased interest rates, but this is just a sign that the market is normalizing, according to Brent Nyitray, director of capital markets at iServe Residential Lending, in a Mortgage Markets today podcast.
“By historical standards, even with mortgage rates at 4%, it’s exceedingly low,” Nyitray said. “We were here in March 2012 and it wasn’t killing the real estate market then.”
Right now, 90% of mortgages are backed by the government, Nyitray said. More than rates, originators are still scared of the CFPB and the idea that they are going to have to compete with Fannie and Freddie by staying within QM guidelines.
Nyitray foresees originators competing by offering a slightly cheaper insurance product.
But he also pointed to consumer confidence indices, noting that people’s personal financial situations are starting to tick down.
“I’m wondering if that is higher interest rates starting to take a bite,” he said. “If so, that would be a leading indicator that we are heading into somewhat of a slowdown, and I’m wondering if that will be what would keep QE here for a while longer.”