Hope for a 'decline in the rate of decline'

Flickr photo by ericskiff.

The Fed's outright purchases of agency mortgage-backed securities -- bonds guaranteed by government-sponsored entities such as Fannie Mae or Freddie Mac -- are having the desired effect: Rates are down and staying down.

Even the Fed's immense power cannot force rates to 4.5 percent or lower (not quickly), but it has removed upside volatility. Mortgage rates should have run back way above 5 percent in a week like this -- a big bear-market stock rally and immense refinance demand -- and instead held near 4.75 percent.

The chatter all week long, especially among the stock-happy adolescents at CNBC: Bottoming is in process, and the worst is over. In the "blogocracy," doom is predominant: The credit fixes and stimulus either won't work in time or were the wrong things to try.

Reality is in the middle somewhere. The thing to hope for is decline in the rate of decline (yeah, we're in that much trouble).

Housing first. Mortgage rates are down, which should stimulate consumer spending and aid a housing turn. Good try. In recent weeks, 80 percent of new mortgage applications have been for refinance, and purchase applications have not increased significantly since rates broke in December. Given suicidal credit and qualifying restrictions, still tightening, the only households that can refi are ones that least need to, and are most likely to save the monthly benefit and not spend.

Home sales appear to have slowed their numerical decline (pending sales rose 2.1 percent in February), but the overall numbers are very low, and the market is distorted by a silent freeze on foreclosures. More are "continued" instead of sold at auction, and servicers are required to use the new but non-operational refi and mod programs before foreclosing -- hence a lot of foreclosure water is building behind a weak dam.

The unemployment rate has slowed its rate of increase: to 8.5 percent in March, the 0.4 percent rise half the rate of February. However, payroll contraction is steady at 650,000 monthly, as are new claims for unemployment insurance at 660,000 weekly. That stable rate of loss is hardly reassuring. ...CONTINUED

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