The attached chart shows why we are probably closer to the high end in mortgage rates and headed lower, rather than the popular view that they have bottomed out and are headed much higher.For those not familiar with the effects of the yield curve, as the differential tightens, the long end (where mortgage rates are impacted) rates come down and the short end rates rise.
Too often, the latter is confused as the ultimate arbiter for mortgage rates. Not so!
Happy New Year!
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As short rates go up, longer (mortgage) rates continue to go down as we have argued steadfastly here. The Fed ceases its MBS buying program at the end of this month but the implications are misunderstood by the media and public at-large.
This morning, the flattening yield curve is on a roll thanks to continued outperformance of long-dated Treasurys over shorter-dated maturities. The move in the 2yr/30yr curve is the most significant, at 362.8 BP from 364.6 BP Wed. The spread has shrunk from the peak of 388 BP last month.
Tame CPI and PPI data this week reduces threat of inflation to the value of long-dated Treasurys, encouraging buying. This is all in the context of a major deflationary environment - not a good place for real estate!
The state and Hoboken budgets will continue to tax more for fewer services. That leaves any regional desires even further in this sector.
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