We Are Not Trying To Predict The Future

In the past few weeks, we have pointed out how tough the government's job is with regard to keeping rates down. You just can't be spending trillions of dollars and then expect that the bond market will not have trouble absorbing the supply. A few months ago the Feds were talking about even lower rates. We said that would be difficult and to expect periods of volatility this year. Well, last week was a perfect example of this. Rates on long-term bonds skyrocketed and then fell back. What does this mean for the markets? If the economy is indeed poised to start rebounding, then rising rates on long-term bonds should not hurt the economy. Rising rates on home loans are another matter.
The Fed has kept rates on real estate loans down by purchasing mortgage backed securities. The spread between mortgages and Treasuries have narrowed to the point that any future increases in bond yields will also affect home loan rates. The real estate market is much too fragile right now to absorb higher rates. We have already seen how a poorly performing real estate market can affect the general economy. So the Fed must try, try, try to halt rising rates at least for now. Of course as we have pointed out, the Fed can't control long-term rates any better than we can predict the future.

This post published by Joanie Deas with Franklin American Mortgage.