The Week Ahead in the Capital Markets - April 27, 2009

April 28th, 2009 · No Comments


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“…the bottom is coming in to view.”  The bottom of the housing market, that is.  Mark Zandi, Moody’s chief economist, believes home sales hit bottom in the first quarter of this year, and prices will bottom in the fourth quarter.  Zandi expects prices to fall sharply through the summer and fall before bottoming out at the end of 2009, down 36% peak to trough. 

Following the bottom, the chief economist expects prices to hold steady through 2010 before they resume rising at a modest rate in 2011 and 2012. “I don’t expect national housing values to get back to their previous peak for more than a decade,” he said. “It’s going to be quite some time before we get back to those previous highs.”

At least mortgage rates are low.  The spread between mortgage and Treasury yields dropped to almost 2.00%, the lowest level in many, many months.  The strain on mortgage industry capacity also eased somewhat, as the spread between mortgage rates and securities yields dipped below 1.00%.  Even jumbo mortgage rates have come down from the stratosphere.  Prime jumbo fixed-rate mortgages are down to 6.25%, still high but at least within reason (with the right credit, equity, and geography, you can get a jumbo ARM below 5.00% from lenders like Astoria).  The Obama put is in full effect, and low mortgage rates look like they are here to stay.

That’s a good thing, because despite the best intentions of the U.S. Treasury, Treasury yields are at their highest levels this year.  The ten-year Treasury at near 3.00% represents a huge reversal from the late 2008 lows around 2.00%.  But for the narrowing of the mortgage-Treasury spread, mortgage rates would be much higher.  A big reason for the move in the 10-year note is that even though the Fed has been buying almost every day, the Treasury has been selling new securities almost every day.  A benefit of long-term rates moving higher?  Banks that borrow short and lend long get rewarded.

The MBA secondary conference was cold, rainy, and poorly attended, but originators that made the trip boasted that they are at or near record levels of production. They are originating products with the best underwriting standards in years and with the biggest profit margins in years.  First quarter profits beat all of 2008 for most lenders.  With some more warehouse lines (help is coming from Wells and GMAC), volumes and profits would be even higher.

Sure the refinance volume is booming, but will anyone buy a home?  Maybe not, according to the Census Bureau.  The Bureau found that the number of people who changed residences declined to 35.2 million, the lowest number since 1962, when the nation had 120 million fewer people.  The number of people changing residences fell 18% from 2007 to 2008.  “It does show that the U.S. population, often thought of as the most mobile in the developed world, seems to have stopped dead in its tracks…” said William H. Frey, a demographer with the Brookings Institution in the New York Times.

Unemployment is continually rising, foreclosures are through the roof. I saw a bumper sticker the other day that said, ‘If this van’s a-rockin’, it’s because we live here now.’  – Bill Maher

Thanks for your business and have a good week.            — Tom Millon

About Capital Markets Cooperative
Capital Markets Cooperative (CMC) provides mortgage bankers with the economies of scale and the expertise to reduce risk and maximize profit in the secondary market. Regarded as the premiere secondary marketing specialist in the industry, CMC has worked with financial institutions nationwide to break traditional barriers in capital markets and take performance and profits to the next level. To date, CMC executives have managed more than $500 billion of mortgage volume.   For more information about Capital Markets Cooperative, visit or call 904.543.0052 or e-mail [email protected]

Tags: Commentary · Mortgage Market · Tom Millon

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