The stock market is DOWN but mortgage rates are UP?

The stock market is down this morning, approximately 100+ points on the DOW. So, shouldn't mortgage rates be down too? That's the way it used to work, but nothing seems to work the way it used to work anymore.

Currently, the word on the street is that the economy seems to be stabilizing. This is causing many economists and analysts to start talking about inflation again, sparking fears that the Feds will start raising rates again by the end of 2009. The result is that investors are dumping bonds so they are liquid, in case bond prices (which move in the opposite direction of bond yields) start to rise.

Ben Bernanke is experiencing a conundrum - what to do now? If the Feds keep buying bonds, and most specifically mortgage backed bonds, will this create some level of inflation, causing him to have to raise rates to curb inflation? But, if he doesn't resume purchases of mortgage backed bonds, will mortgage rates continue to rise? Right now, the Fed is being very quiet as they watch, and mortgage rates have been on a tear.
Low mortgage rates were helping with stabilizing house values. Buyers were tipping their toes into the market, encouraged by record low rates, lower prices, and for those first time home buyers, the $8000 tax credit. As of today, the buyer has less buying power (due to higher mortgage rates) than he/she had in December 2008 (when housing prices were higher)! This is a conundrum of huge proportions.

Over the last two weeks, we have watched the average rate on the 30 year fixed rate mortgage move from a national average of 4.84% 5.45% this morning. Does this mean that housing prices will have to drop more to keep housing affordable? It is predicted that the Fed probably will not make any adjustments to their Treasury purchase program until after their next meeting June 23-24. This is because they do not want to be perceived as "reacting" to swings in yields, or acting in an arbitrary fashion. But we do know the following:

1. The yield on the 10 year bond rose to as high as 3.90% this morning, before dropping back to 3.8+

2. Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing.

3. Higher rates may deepen the two-year housing slump that helped trigger the recession and sideline consumers planning to refinance or buy their first home.

4. The median sale price for a U.S. home dropped in April to $170,000, down 26 percent from a record $230,000 in July 2006, according to the National Association of Realtors.

4. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan fell 16 percent to 658.7 in the week ended May 29 as borrowing rates climbed.

5. The Largest holders of Mortgage backed securities, PIMCO and Pacific Investment Management have cut back their holdings of these securities drastically as they watch what the Fed will do in the near future.

6. Mortgage bonds have gained 1.9 percent this year, according to Merrill Lynch & Co.’s Mortgage Master Index. Treasuries have lost 6.2 percent this year, according to another Merrill index, after gaining 14 percent in 2008.


There are economists out there who believe that the rates on mortgage backed securities could drop back down to as low as 2.15% by the end of this year. This would equate to mortgage rates below 5% again.

If you think it would be beneficial to you to refinance at this time, or some time in the near future, again, my best advice to you is to get a mortgage loan application in process and pre-approved, so IF rates drop again, you are in a position to lock in those lower rates. Virtually no one is talking about future rates at 4% anymore. But who knows? It could happen?

I do appreciate your feedback about these newsletters, and of course, your continued business and referrals.
The greatest compliment you can pay me is feedback and referrals.

Best regards,


Shelby Bateson
Town & Country Mortgage
10228 SW Capitol Highway
Portland, OR 97219
503-819-6545 phone
Lic # ML-3604
http://www.shelbytncmortgage.com/


* Best rates apply to borrowers with Loan to Value at or below 90% and credit scores of 740+. ** Best FHA rates apply to credit scores of 660 and up. There are upward rate adjustments for lower credit scores on all loan programs. All rates are subject to change without notice. These rates are NOT APRs - do not include closing costs.