Mortgage rates, prior to June, were stabilizing after a volatile first quarter. Potential home buyers and existing homeowners were settling in to the fact that a 4.5% conventional mortgage rate could be had; some days you had to pay a couple of points, some days only one. FHA and VA loans were about an eighth of a percentage point higher.
Brighter days in the real estate market seemed inevitable.
Volatility hit the mortgage rates market like an unexpected tsunami. Here’s how it unfolded:
- Upwards pressure quietly started about a week before Memorial Day. We figured the mortgage bond traders were taking some profits. No big deal; we recovered and rates came back down to the 4′s.
- The triangulated attack came from a California politician, a California bond fund manager, and the Chinese. I thought the bond market was overreacting. Rates jumped up as high as 5.375% but came back down to 5%. I felt comfortable that the Fed would intervene, keeping mortgage rates below 5%.
- I was optimistic about this prospect of lower mortgage rates and cautioned that only one thing could rain on that parade.
- Last Monday, I awoke with a pit in my stomach; that “one thing” happened. I cautiously locked every loan in my pipeline; all at 5%. While I believed in my heart that rates would drop again, the risk seemed too great to play around. I privately thought the mortgage bond traders were just playing chicken with the Fed.
- Last Thursday, I reversed a six month bias towards lower mortgage rates. Since December, 2008, I believed that the Fed would artificially keep rates below 5% in order to spur economic activity. I privately thought this “money printing” would ruin the economy with hyper-inflation but I expected that sometime in the Fall of 2009. Still, I never fight the Fed.
- Friday, I wondered if the better unemployment numbers, which drove retail mortgage rates to 5.5%, might be the final blow in this massacre. Nuthin’ doin’. We haven’t peaked just yet.