July 8th, 2013 2:59 PM by Nick Rapplean
Having shot up to 4.46% the week before last, the Freddie Mac average 30-year fixed-rate eased back down to 4.29% this past week. Getting a purchase money mortgage, therefore, is like negotiating a walk home amidst earthquake aftershocks. The way has been rather treacherous and unpredictable.
What we can see rather clearly, though, is that this is not a turnaround. The real estate market has not fallen into a massive pothole; it is still alive and quite well. Note, for example, that new applications for purchase money mortgages declined by a relatively small 3% from its high position the prior week. If we were in the midst of a market turnaround, applications would be diving into the deep end of the pool at this point.
Applications for refinancing loans were off far more precipitously last week, of course---refinancers are generally seeking, above all, the lowest rate they can find, and they retreat when rates rise. Another 16% decline in the number of applications for refis this past week should not surprise us in the least.
The overall market showed signs of an easing, meanwhile. This was symbolized, in a sense, by the fact that the number of new payroll jobs in June was precisely the same as the revised number in May (195,000), and the unemployment percentage was also the same for May and June (7.6%).
Indeed, looking back at the last two weeks, we may want to say that the credit markets didn’t go through the major change that many or most people may have thought they had. Yes, the 30-year fixed rate climbed by about 50 basis points...BUT not on economic fundamentals, which remain relatively unchanged. What moved mortgage rates was a lot of fear and gnashing of teeth over whether Bernanke and the Fed are about to pull the plug on quantitative easing, without which it seems that a vast number of investors are worried the markets will sink under their own weight. With the Feds help, though, there seems to be a tentative confidence that we can all remain high and dry.
Was this an overreaction to the Feds recent announcement about when and how it might stop investing $85 billion in mortgage-backed bonds? When? The Fed keeps saying, "Soon." But not saying when exactly "soon" will arrive. The point right now is that no one knows. There is no certainty about a dang thing most particularly about what effects the end of QE3 will have. We’re in uncharted territory, mates.
Nonetheless, if WAS an overreaction.
Without a sense of direction, without knowing which end is up, we can only guess. And, investors don’t guess. They discern wisely among various possibilities. Ask them to guess and the best they can do is to turn the markets into unpredictable roller coasters.
Very likely well see our share of turmoil in the coming months, but we find ourselves very glad, as the year reaches its close, that we placed our bets on real estate.