Late May and early June in the mortgage business remotely feels like the American campaign in the Pacific during World War Two. Our "casualties" are minor compared to this brave young man's experiences so permit me some literary license with my analogy.
The mortgage-backed securities market has been overwhelmed with sellers these past ten days. Rates have moved from 4.5% to 5.375%...again. I thought the worst was over last week; some temporary respite was offered last Friday. This week, we felt like an unescorted aircraft carrier, in high seas, facing a horizon of zeros from the Land of the Rising Sun. Each day this week, optimistic economic news triggered thoughts of hyperinflation in mortgage bond traders' minds; they reacted by systematically selling mortgage bonds which drives mortgage rates up. Today, a conventional loan is offered at 5.375% (with 1 point) and a VA or FHA loan is offered at 5.5% (with 1 point).
Today, better than expected employment figures were reported and the onslaught continues. I expect Monday rates might jump above 5.5% which could be a significant mark. Psychologically, this could dampen not only refinance activity but home buying activity. Moreover, jumping above the 5.5% high water mark could overwhelm mortgage bond traders and trigger another sell-off, leading mortgage rates to 6%. It's no wonder that I reversed course and started short and longer-term locking strategies for all borrowers, regardless of closing date.
The Battle of Midway is considered by many to be the turning point for the American forces in the Pacific campaign of World War two. We didn't "win" the battle but we didn't "lose". Midway's "stalemate" however was a HUGE psychological victory because it enabled the US Navy to go on the offensive, push forward at Guadalcanal, and start the slow but steady campaign to win the War of the Pacific Ocean. The Battle of Midway turned back the tide.
Where is our "Battle of Midway"?
I am cautiously optimistic that a force similar to the Navy at Midway is forming in the mortgage bonds market. Today, mortgage bonds are significantly down but desperately trying to rally. If mortgage bonds can recover its morning losses, this afternoon, we may have established some sort of base. An afternoon recovery would allow for Monday's mortgage rates to stay at 5.5% or below and THAT is a psychologically significant victory...
...even if it's not a victory. Like the Battle of Midway, we're hoping to turn back the tide. We're all getting a bit weary of a horizon-ful of zeros, each morning.
PS: Thanks for the indulgence of my analogy. I hope I can make the arcane topic of residential real estate finance a tad more interesting than it really is. If you need some help, my phone is (858)-777-9751.
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