Thursday, March 6, 2008

Rates rise over .50 yesterday now over 6%!

A few quick points this morning on the rapidly changing housing market. CNBC reported today that rates moved to over 6% in the 30 year mortgage market representing a move in just one day of over 1/2 a point to about 6.03%. For the homebuyer this does not include the lenders profit so add another 1/4-1/2 point and you now have mortgage rates at close to 6.5% versus 5.5% about a month ago.

This .50 point one day move was the largest one day moves ever. I had warned yesterday morning that the unusual high spreads(which represents FEAR) in the credit markets yesterday and over the last few weeks would result in a higher moves in interest rates.

As a result, this will put further pressure on housing prices because people will qualify for less money as a result of the higher rates. Expect rates to keep rising until someone starts buying mortgage paper in the credit markets. Keep in mind that this paper in the credit markets is gov't insured and there are still NO buyers. This is the level of FEAR that the credit markets have right now. Even solid mortgage paper with zero defaults is considered to be garbage in the credit markets because no one believes this it is safe debt to purchase. Until this FEAR subsides and people believe that housing is stable things are only going to deteriorate.

Who are the casualties here? Companies like Thornburg Mortgage(TMA) that I discussed a few days ago. They announced last night that they were unable to meet a $28 million dollar margin call yesterday on debt that they cannot sell. If they cannot come up with the cash then they will go Bankrupt within days. Stock is down another 50% as we speak. They probably have some of the safest debt on Wall St. based on their tight lending standards but without a buyer for their securities they have no chance to survive.

This is getting reall really ugly folks. When companies like TMA are about to go under things are really bad. If the credit markets continue to not function and rates continue to rise then expect a time bomb explosion in the housing markets. We are on the verge of a violent stock market event IMO. A potential crash in the stock market is not out of the question here.


Minton Mckarkquey said...

Yes - you echo the sentiments I've had for six months now. This are going to get much worse before they get better. Then you have to think about:

1) Properties >$350K being impossible sell due to tighter lending restrictions, jumbo mortgages, etc.

2) Buyers no longer being able to lie about incomes by frigging payslips etc.

3) A glut of foreclosures destroying the credit of 100,000s of people and subsequent impact on all other credit (cards, cars, etc.)

In the meantime, many major banks are selling the shops to the middle east. After decades of building value, this crisis is going to burn them out in one move.

Jeff said...


I agree the ponzi game is over. did you see the citibank news? Reducing loan prtfolio by 45 billion. Where are people going to get loans?

Smaller loan pool will just tighten lending standards