Crude's Collapse and Mortgage prices?

First, mortgage rates are normally tied to long-term bond rates. Second, in this credit environment, where banks are recapitalizing and are increasingly risk-averse, especially with respect to real estate since they see prices still falling, the normal correlation between mortgage rates and long-term bond rates has been broken.

So no chance of high-5's anytime soon.

"Mortgage rates spiked this week on inflation fears, with the benchmark 30-year, fixed-rate loan soaring more than a quarter percentage point to a national average of 6.63%, its highest level in nearly a year, Freddie Mac said Thursday.

"Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve will raise short-term rates this year all combined to push mortgage rates higher this week," said Frank Nothaft, Freddie Mac chief economist. "

steve stick to translating and renting.

All depends what the MBS Investors want to be paid...everyday there are more forclosures is another day the Investors go into hiberanation due to being burned so bad...

High 5's in next two months? Good luck...

I do not think its related. Regardless of what some say, there is plenty of speculative trading in crude and all commodities actually. Its been the only asset class that has worked for past few years. Now that crude cracked, wrong side bets will get killed, downside will be fierce, and all commodities will be dragged lower. Its own animal.

Risk is still being re-priced for mortgages and rates are their own animal, as steve said, not so related to long term bonds as they used to be in normal credit environments. Jumbo rates have spiked, but I think eased a bit. No way you see high 5s anytime soon or ever again in next 5 years

Nice timing petrfitz,

Non-jumbo rates?? a.k.a. comforming rates?? or conventional rates??

Call them whatever you want. They are moving higher.

This letter to lenders just out from Fannie says it all:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0818.pdf

"No way you see high 5s anytime soon or ever again in next 5 years"

While I agree with this comment, if the gov't uses the last arrow in its quiver this can possibly happen (and we all know its not a matter of if, but when)

Soaking the taxpayers and buying up all the bad mortgages / MBS / CDO out there and allowing the banks (as well as a transparent securitization process that is in the works) to start from scratch...it happend before so might happen again...

Even then, not sure it will get down to that level, but would help...

But not counting on it...

10-year government bond yield has only come down 10bps since crude peaked. I think crude would have to fall a lot further for it to matter.

There aren't too many large players left with an appetite for mortgage securities, here or foreign. Less demand for these securities thus rates must increase to attract decent investor interest. Indicative of this, mortgage rates are higher now than they were before the Federal Reserve began its aggressive rate cut moves early this year. It is also more difficult to obtain a mortgage today as they are not easy for banks to sell them.

MBS rates are trading on their own planet and the Fed has very little control over their direction. Investors interest or lack thereof will determine the rate levels.

Well, $120 a barrel is better than $140. Oil prices are still a long way from being a positive economic force.

"I do not think its related"

Not directly but look at it this way. As commodities rise so does inflation (the Feds #1 enemy). The Fed in turn needs to raise rates to slow down the economy and stamp out inflation. The Fed currently is faced with the fact they may need to raise rates into a recession in order to stamp out inflation caused by rising commodity prices. Now, with commodities getting slashed and reported demand for commodities slowing, the inflation issue may be off the table. Thus, the Fed may be able to cut rates in order to stabilize a cratering real estate market. Cutting Fed funds rates can allow for mortgage interest rates to fall...just one possible scenario...

commodity inflation, driven in part by speculation as an asset class that is hot, is very different from wage inflation and inflation in money/credit; both of which we do not have right now.

Commodity inflation - YES, so higher food & energy prices
Wage inflation - NO
Expansion of money/credit - NO, massive credit deflation

Deflation is more of a threat, but the fed will talk tough on inflation to hopefully give the dollar support and ease commodity prices and therefore commodity inflation

Apparently, sneaky, you're outnumbered.

Stick to living next to Celine Dion.

17% off an outrageous high is a "collapse"?

Wow, can't wait to see what SuckerPete will call a 20% decline in the real estate market.

Wait, I know the answer.... an increase.