Tracking the Bond Markets for Direction
Bill Gross, who runs the Pimco Bond Fund is considered one of the gurus of the bond markets. Investors know this and so the Pimco Bond Fund is huge. If Pimco buys or sells bonds or mortgage backed securities, it can move the market. see chart here
Recently, Gross sold off 30 billion dollars of mortgage backed securities. He notes that mortgage backed securities have been increasing in value (good to hear) and he thinks that now is the time to take profit. *Chart: The Fed has now purchased about $945 billion in agency-backed MBS through the week ended October 14.
Federal Reserve's Mortgage Purchase Program
The secondary mortgage markets have been frozen and thats a big reason why there has been little money available for home loans. To keep the markets moving the Obama Administration has been buying up mortgages to keep the markets liquid.
The Fed started buying agency-backed mortgages in January in to bring down mortgage rates. Since then, it has bought the majority of agency MBS on the market. Recently the Fed has decided to wind down the mortgage purchase programs.Once the Fed stops buying mortgages, the fall in demand will lead to a drop in MBS prices.
Why Do We Care
Expect interest and mortgage rates to rise.
Too much supply and not enough demand means prices go down, and yields had to go up to attract investors. Basically, this is a test to see if the banks and the marketplace have reached a point where they can begin to function without Govt stimulus. Lets hope the Fed stays close to the exits.
The Home Buyers tax credit is due to expire. Congress is considering extending and possibly expanding this program. Its been a help by soaking up supply.
Home resales in September showed the largest monthly increase in 26 years as buyers bought before the tax credit for first-time owners expires. Sales jumped 9.4%, according to NAR.
The FHAA index measures repeat sales on homes financed through Fannie Mae or Freddie Mac. Although Prices were down 3.6% in the past year, and were down 10.7% from the peak, they rose in four of nine regions, fell in four and were flat in the other
Momentum
If we can offset the higher rates which are likely to tamp down sales with a $15,000 home buyers tax credit, we may be able to keep homes moving. At 20% of the economy, its crucial that the real estate markets remain on a positive track.
Thanks for Reading
www.yourpropertypath.com
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Comments (5)
But that "zero" figure may be wrong in that the total bust figures are ok, but the sales of those homes happened twice. Once to an investor, then to the end buyer. Therefore it is possible that half of the iventory is still being held by banks as assets to avoid the FDIC takeover when the asset ratio is too low. I do not really believe there is a flood of these comming, as that too would hurt the asset picture, but as the economy does pick up we will see a corresponding pickup in these houses being released to investors. This area will continue for some time to be a good area to invest in.
Jim Wineinger, almost 15 years ago
I agree. Problem is the amount of supply in the banks pipeline is unknown. In 2001, unemployment lingered for 18 months after the technical end of the recession...."near" could be 1-2 years. A Chart: I have a chart that gives great perspective on the size of the problem. The red shows you the extent of this housing bust and the green overlay is the housing bust of the last bust. It took almost 18 months to get to the zero line before we had positive price increase. located here: Pate in this url http://yourpropertypath.com/artman2/publish/Current_Market_Conditions/Case_Shiller_Real_Estate_Trends_And_More.shtml Sorry, no way to create a link.
Howard, almost 15 years ago
The only problem is that lag time in foreclosures hitting the market combined with more and more foreclosures. As these begin to hit the market as supply and the demand of that tax credit ending this will equal more supply with less demand. supply agains outstripps demand and prices once again fall, hopefully this time to the final bottom as everyone agrees that it is near.
Jim Wineinger, almost 15 years ago
yes, I think inflation is in the future.The only thing that might temper it is a change in spending habits. If we actually become a productive and saver nation rather than consumer oriented nation we might get a little more control.
Howard Sobel, almost 15 years ago
A substantial increase in mortgage rates would be deadly right now. But with so many signs pointing to inflation, it seems it's just a matter of time.
Jon Klaus, almost 15 years ago