Long-Term Interest Rates Inching Up
- The 10-year Treasury yield has been creeping up despite the efforts
by the Federal Reserve to bring it down. TALF (Term Asset Lending
Facility) is being utilized to buy government bonds, small business
loans, credit card and other consumer loans and securities in order to
get dollars moving along the economy. The Fed can do this by printing
- When the Fed buys bonds, it pressures the rates to fall - in
general. But if people believe there will be future erosion in the
dollar's purchasing power, they will be less receptive to lend unless
higher interest rates compensate for the potential loss in the
purchasing power of the dollar.
- That is what may be happening in regards to 10-year Treasury yield
moving higher even though the Federal Reserve has been buying those
- The 30-year mortgage generally moves roughly in proportion to
10-year Treasury moves. So the mortgage rates could be a tad higher
this week compared to the last.
- A government agency collecting information on mortgage modification
from major lenders showed increased re-default rates among recently
modified loans. The link is here (Put link …
- A modification that reduced payment by forgiving portion of
principal, lower interest rates, or extending the amortization period
did show lower re-default rates than those modifications that did not
lead to a lower monthly payment.
- Foreclosure rates will rise despite mortgage modifications plans if
redefaults show no sign of abating. As long as home prices continue to
overshoot downward, redefaults will continue to rise as underwater
homeowners 'give up.'
What does today's data mean for REALTORS® and consumers?
- Do not automatically assume mortgage rates will fall further
because of the Federal Reserve pumping out more money. Rates may fall
or they may not. There are a lot of forces at work in moving interest
rates one way or the other.
- Foreclosures will surely trend higher as close to half of modified
loans end up re-defaulting. The key to housing stabilization is whether
or not there are sufficient buyers of foreclosed homes.
- Recent data indicate that home sales are picking up on the low-price points and for those homes in foreclosures.
Daily Forecast Update
- GDP Q1: -4.9%
- GDP Q2: - 1.7%
- Unemployment rate by the end of 2009: 10.0%
- Average 30-year fixed mortgage rate by the end of 2009: 5.2%