End of Fed MBS purchases have KILLED this mkt

When the meteorite hit the planet, all the dinos did not die instantly. Some probably lived by scavenging off of all the dead carcasses.

Printer, don't be the child opening Xmas gifts a minute past midnite. The gifts will still be under the tree in the morning. Now go back to bed

yes, yes - the end of the world is coming in summer '09, wait make that spring '10, wait, i know - december '10. Didn't I tell you to get lost when you knocked on my door last week?

The Mayan calendar says 2012, he's got time.

If Jesus himself came and told you there was a bubble in 2005, would you have listened to his healing words o' lost sheep?

"rates supposed to skyrocket when the Fed stopped buying? You know, all the gov't liquidity was the only thing supporting rates? hmmm"

Strawman. Who said that, and when? If you go by the average of the twenty analysts polled by the WHS a month ago, the estimates ranged from 3.5% to 5.5%, averaging about 4%. The consensus based on the yeild curve also does not support TOP. And if you NEED a reason, see what is going on in the EGB and Gilt market.

jason, search back, there are many posts on here claiming the only thing keeping mortgage rates where they were was the Fed purchases of MBS. I am neither talking about treasuries, nor am I talking about economists. I'm talking about the local community here on SE.

but I love the fact that W67 now likens himself to Jesus.

Movement in rates is a slow process. With fed keeping the short-term rates low, the carry trade is still alive. The moment there is a signal (likely due to 3 continuous month of jobless rate reduction) from the fed that they will raise short-term rates, the carry trade will get unwound with nothing to support the bonds. 10 year will probably go up 50-75 bps. I humbly predict June-September timeframe.

Well, that might be true. The actual WSJ poll is not far from where rates are now, and mortgages are inexorably tied to UST rates. Its rare that they are too far out of whack. Incidently, in countries where they are NOT doing quantititative easing, mortgage rates are still trading in tandem with their benchmarks. I think the point of the MBS purchases was quant easing, which drives down ALL rates, including treasuries (if you don't understand why i don't have time to explain.) But currently most mortgages are "government backed" which makes the spread fairly narrow to treasuries. In addition, Greece et al are making USTs look safer and safer all the time, crazy though that may be to Larry Kudlow.

well many only saya 35-50bps discount from fed mbs program. if you look, that is about the adjustment in the 10yr, but I believe rates for agency coupons have been closer to a 30-35bps move up...nothing noticeable in the grand scheme of things..

now the talk is about selling those assets. no way, but when that does happen you will see more movement. I think what people fail to understand is that higher rates will likely be a slow, methodical longer term trend over the next 5-7 years, perhaps more.

Nice to come up with big Wall Street things that totally make no difference to buyers.

And pretty inappropriate to be talking about Jesus to support housing in New York. What are the boundaries?

printer is right. There are a giazillion posts that said rates would skyrocket when the fed stopped buying MBS. This was also repeated by virtually every housing blog in the country and the media. And top top off the unchanged rates, home sales for March went UP.

I don't think it really matters what the rate is on loans not being made.

Yes, the Fed's plan all along was to suddenly pull out from the mortgage market in a way that spikes mortgage rates. After all that's what their plan was all along, you know to give a sudden jolt to the mortgage market.

*sarcasm off*

The government has engineered a smooth handoff to private market. If mortgage rates spike significantly, they'll be right back. They have been pretty explicit about saying so. All the money you keep it your money market accounts is supporting the mortgage market. Pre-2008, they would give out short-term loans to entities holding the mortgage debt. When the shit started hitting the fan, every money market account decided they didn't care about the 35 bps extra yield: they put the cash in T-bills. As such, the government started getting all these short-term deposits. Not wanting to deleverage the whole economy by a couple of notches overnight, the govenment started issuing more T-bills (which your money market fund started parking its cash in) and started buying the long-term debt. In effect, the government stepped in the middle of the transaction that used to happen without it. Rather than your money market deposit funding mortgages, your money market deposit started funding T-bills which the government stepped in to fund mortgages.

The reason the government had to step in is because everyone else was scared shitless. More specifically, it was the only player around able to (a) suffer a few hundred billion dollar loss -- temporary or permanent -- against its balance sheet (Freddie/Fannie/AIG/Citi/BofA/etc.) and (b) able to push the market around indefinitely with infinite liquidity. So yeah, when the government has demonstrated unending willingness over a year-and-a-half to draw a line in the sand by keeping interest rates at 0% while giving a 5.x% yield on effectively government guaranteed mortgage debt, you bet the speculators are going to step in to use your money market cash to finance the spread given the shit is not hitting the fan any longer. Hence, the smooth handoff.

The other important thing to keep in mind is that the loans being made today are loads more secure than those that were made a few years ago nationwide. Those Phoenix homes actually are at very reasonable price-to-rent ratios. The NYC loans aren't that bad either. If a lender had access to a bunch of cash from depositors or money market funds, and they could get a carry of 5% on it, and on the other side is some couple making $250K a year with a $250K down payment on a $1M apartment, that might look attractive. Even if if the lender believes the true fundamental value of the apartment is, say, $700K, that debt doesn't look terribly ugly. In fact, the probability of default on such a couple is small until a drop to around $500-600K.

All that, however, doesn't mean that being an equity investor is a great idea. Suppose some guy has a $700 pile of gold. Should you be worried about the credit risk of loaning the guy $700 if you got to hold the $700 gold as collateral, hedging the gold exposure on the futures market? Probably not. Should you be worried about paying the guy $1000 for that pile of gold? I think so.

Boy, that was long and rambling...

Holy crap, that was the most well written piece on the subject. Glad you are on our team, team 'logic'. The lemmings may have the numbers in realtwhores, borkers, 'can't explain manhattan' (yes I heard that one), well I did well in th bubble economy, and endless Irish millonaire carpenters..... But no chance against inonada.

Fannie & Freddie bought out delinquent loans from their seasoned MBS pools. For now this money needs to be reinvested. We have not seen the full effect. I'd wait till June.

Thanks, w67th. I like to think of you as the Flavor Flav of team 'logic', you know the crazy-ass hype-man bouncing around the stage with a big-ass calculator hanging from his neck and yelling "Yeah lemmings!"

new home sales are measured by contracts signed...which of course would surge due to homeowner tax credit expiring by next Friday...must have contract signed by then.

again, most of us discussed a 35-50bps move when fed stopped the program..and that is pretty much what happened. if your talking about those who said rates would fly 150bps, yes they were wrong.

Well they forgot that there is such a thing as hedging interest rate risk via futures or interest rate swaps, thus keeping demand high even at lower rates.

nonada
2 days ago
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Yes, the Fed's plan all along was to suddenly pull out from the mortgage market in a way that spikes mortgage rates. After all that's what their plan was all along, you know to give a sudden jolt to the mortgage market.

*sarcasm off*

The government has engineered a smooth handoff to private market.

Exactly. Which is the exact opposite of what many on here were saying. The argument was that the Fed was the only thing supporting the MBS market, and that when they stepped away spreads would gap out - that the cover bid (private mkt) was at least 35bps in back of that. If the private mkt bid were truly there, then even a 'smooth transition' would have mean a gradual widening of the spread to match the private mkt bid as the Fed eased out of their intervention. But that's not what happened. Even I'm surprised that spreads tightened as the Fed intervention wore down, and that the private bid easily stepped in to take its place.

And don't come running back when rates widen in 6 months to claim victory. I fully expect rates to increase as the economy shows increasing signs of strength, and the Fed doesn't need to keep its foot on the accelerator as strong. Rising rates will be a good thing. What I don't buy is the argument that rates will widen of their own accord while the economy remains weak. In short, rising rates will not lead to a weaker housing market.

They pay me 2% on my savings after going thru lots of hoops... you telling me this "normal?" No Mr.Bond, I expect you to die.

LET ME F'N explain this to all the lemmings.... Its' NOT that we are going up in rates.... ITZ that WE ARE AT UNNATURAL LOW LOW LOW rates given the phase of the business cycle we are in.... THE SALES that are occurring in housing IZ lots of spec and lots of idiots saying "$2000psf" in 2007 and now $1500psf... I'm a genius... I'M ALL IN!!!!!!

And once again the delta on price based on 200x rents... is HUGE given a 5% decrease in rents... yeah I know NYT is cheerleading all the way... but note how many articles they pump in the "is this the bottom" side.... FLMAO... printer.... 6 months is that how long you plan to live in your home?

"if your talking about those who said rates would fly 150bps, yes they were wrong."

What else is new?
All these knuckle-heads here are always wrong.

Anyone read the real-estate piece on this weekend's Time?
Free 1-2 months are going to be extinct in a few more months.

Some of you will be sorry in a few years with all that cash sitting in the bank these days earning 1-2% interest when inflation picks up.