The main reason for Wednesday’s tsunami...OVERSUPPLY. The Treasury has literally been printing money by way of Treasury auctions to pay for the massive spending initiatives. Not to mention that these hundreds of BILLIONS of dollars of new Bond supply have to be absorbed by the market, so the additional supply literally weighs on the entire Bond market and drags prices lower. Also, when you think of supply, consider they myriad of refinances and all those loans have been bundled, packaged and sold on Wall Street. This additional supplyhas now started to hit the secondary market, as those closed loans are now getting turned around and sold. This supply also must be absorbed, and while the Fed has been a buyer, they simply can’t buy enough to balance all the selling. It’s Economics 101, anytime supply vastly exceeds demand, prices will move lower. As prices move lower, yields rise and that rise in yield will attract new buyers as they get a higher return on their investment. This process is how the market finds balance.
The question on everyone’s mind, will rates come back? The answer is that we will probably see some improvement, of which we saw a 0.25% decrease in RATE this morning. However, it will be difficult to see rates fight back to the levels they were at just last week. There are both fundamental and technical reasons why a retracement back to last week’s levels would not be easy. We are advising our clients to carefully float.
FHA ANNOUNCEMENT
It was just announced that the FHA will allow the $8,000 first time home buyer credit to be applied directly towards home purchase costs. More details to follow.
Remember, your clients never pay for an appraisal at RMA. We will refund any appraisal cost to your client at closing. Any market or loan related questions, please feel free to ask.
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