Long-term rates are again approaching four-month lows, with 10-year T-notes just above the magic 3.28 percent level; break that and low-fee mortgages will cross just under 5 percent.
If that blessed moment should arrive, do not wait for lower or expect sub-5 percent to last more than a few hours: Surviving mortgage lenders will yell "Now!" to a few million boat-missing refinance candidates, and that renewed demand must be worked off before any deeper drop.
The moment will be a blessing for us, but caused by bad news for the economy. The "V"-shaped-recovery "Green Shooters" lost a lot of ground to the "L"-shaped non-recoverists this week, the few growth items offset by flatteners and an unsettling statement from the Fed.
The good stuff: New claims for unemployment insurance fell to a cycle-low 530,000 last week, still double a healthy level and not a confirmed trend, but crawling down 25,000 or so every couple of months.
August figures pancaked a tentative uptrend: Sales of existing homes fell 2.7 percent and sales of new ones eked out a 0.7 percent gain on bottom-price building. Orders for durable goods were supposed to rise on the last of Cash for Clunkers, but dropped 2.4 percent (Clunker swaps now gone, September auto sales are running 38 percent below August).
The Fed’s statement led with a cheery preamble, "Economic activity has picked up," but on further review was "Tweedlee-Dee-ing" past the graveyard. A confident Fed would not have extended mortgage-purchase commitment into next spring, nor confirmed the entire $1.25 trillion commitment, nor have left the door open to more if necessary, nor forthrightly renewed "exceptionally low rate … for extended period."
I think the Fed properly took a wait-to-see timeout since last spring, after massive intervention, but is now nervous about a stall. And should be.
"Massive" is not an adequate adjective. There are $10 trillion in U.S. first mortgages outstanding — have been ever since 2007. All categories except Fannie, Freddie and Ginnie (the government-sponsored entities, or GSEs) have shrunk, and those three have increased from $4.2 trillion to $5.5 trillion. By next spring, the Fed will have bought 90 percent of the increase, and own 20 percent of the GSE total. This operation is the sole source of new mortgage credit. …CONTINUED