Message: Mortgage rates are on the rise
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As if we need another reason for a slowdown in the housing industry, Freddie Mac (FRE) and Fannie Mae (FNM) 30 year fixed rate mortgage securities have reached a 2-month high. The rates have crept up to 4.72% from a low of 4.38% reached on July 31st. The good news is that this type of rate increase is pretty insignificant for lower end homes, but the bad news is that this type of rate increase will have a greater effect on the middle-to-higher end home sales.
Even though the housing sales numbers have looked much better over the past few months the improvements were largely in the lower end of the market. The middle and higher end of the market is pretty much dead in the water and will more than likely continue to have price declines. This is not surprising as all of the benefits and incentives are really for first time home buyers who are not going to be able to buy the multi-hundred thousand dollar homes.
The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10 year Treasuries widened 0.04 percentage point yesterday to 0.97 percentage point, the widest since July 21, Bloomberg data show. The spread on Aug. 3 reached the tightest in more than two months, at 0.88 percentage point.
Barclay’s (BCS)anticipates further declines of 11% in housing prices while Deutsche Bank (DB) estimates a 14% decline extending into 2011. The increase in yields on mortgage backed securities is also from lack of interest from investors as well. However the Fed is buying so who knows where rates will be in the near future. Regardless, higher rates will have some impact on housing sales in the near-term, but with rates so low it really shows there's just a lack of buyers in the housing market.
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