Slowing housing market and the bond spread

Mortgage market commentary

Big doings this week. The tentative signs last week of a top in long-term mortgage rates this week turned into a brass band blaring the news.

The 10-year T-note fell as low as 4.45 percent yesterday, down from the scary top just short of 4.7 percent only 10 business days ago. Yes, mortgage rates are supposed to follow the 10-year bond, but this time for technical reasons involving hedging of rate risk, fixed-rate mortgages are stuck just north of 6.25 percent.

And, don't confuse a top with the prospects for a decline, the latter not being good.

The change at hand is the shift from fear that the Federal Reserve Board would continue to raise the cost of money from its current 4 percent up to 5 percent or more, open-ended into 2006, to the belief that the Fed is very close to being done. The bond market is telling the Fed that neutral is nigh.

The Fed meets next on Dec. 13, and all still expect 4.25 percent at that meeting, and most expect 4.5 percent at Fed nominee Ben Bernanke's first meeting on Feb. 1. This week's trading has removed thought of the Fed going beyond 4.5 percent, and has called into question the wisdom of going any further at all; the pattern of rates across all maturities suggests that if the Fed does go to 4.5 percent it will not be able to stay so high for long.

Read the entire Inman News article