What Now for the Stock Market and Mortgage Rates?
I’m thinking that this is an important time to talk about the stock market and what may happen to mortgage rates. You should know that I spent 25 years in the financial services industry and that many people believed that I was a pretty good technician. Most financial advisors, fundamental or technical, get a good feel for the markets after having watched it for many years; only a few will give you the bad news in advance. Hope you had one of those?
On March 6th the Dow Jones Industrial average fell briefly below 6500; 6469 to be more precise. The high for 2009, on an intra-day basis, was on June 11th when the Dow hit 8877 very briefly. That 37% gain was one of the highest (bear market rally?) since the great depression.
A break below around 8240, Thursday’s close was at 8280, could very easily see the market retrace to the 7700 level. There is a worse scenario and I’ll deal with that later in this post.
Now let’s consider what has been happening to the 10-Year Treasury Note. In the not too distant past you could track mortgage rates by looking at the 10-Year Note. That changed, for a time, when the Fed started buying Mortgage Back Securities. They have pledged to buy $1.25 trillion and they are halfway through that number.
In February the 10-Year Treasury note hit a low of 2.038% and in June the high was 4.174%. That’s a 100% increase; pushed up by green shoots in the economy, a rising stock market, inflation fears, dollar weakness (foreigners don’t want to hold our bonds with a weak dollar) and thoughts that the Fed would tighten.
If you had great credit and very good equity in your home you could have gotten a refinance in February or March at about 4.375%; a couple of weeks ago it would have been around 5.5%, now it’s about 5%.
What’s ahead? If the markets keep falling, oil prices continue dropping, the dollar remains neutral, and inflation fears calm then rates will go lower. I do not expect that we will see 2%; more like 3-3.2% on the 10-Year Note. This should translate into a 30-year fixed rate at about 4.625% – 4.75%; unless the Fed decides to buy a lot more mortgage backed securities.
My suggestion to those people who are looking to refinance or buy a home (first-time homebuyers in particular) is to get moving. The new appraisal laws are slowing the process down; just get the loan application started. You will then be in a position to move forward when you are ready!
I mentioned early in this post that things could get much worse. A friend of mine, Gary Savage, is an extremely astute advisor. I have tracked him over the last year and I’ve been very impressed with his read on the markets. I would like to hope that the market and the economy find a bottom in the next 4-6 months; that may not be the case.
Here is Gary’s read on current events.
If you want more information about Gary Savage and his Smart Money Tracker services click here.
July 7th, 2009 at 7:51 pm
[...] keep pace with what was happening in the markets; this is just commentary but worth considering. My last post mentioned Gary Savage and The Smart Money Tracker; his latest comments will bring furhter light to [...]