Easy Money Means Never Say Never
As US Treasury rates sink, one would guess mortgage rates would keep falling. One person considering locking in a 30-year rate of 3 3/8ths percent a couple days ago decided to wait, saying, “the Fed will keep cutting, I think I’ll hold off.” Yesterday, Quicken hiked it’s rate over 100 basis points (1%).
“We’re out of money,” a call to the Detroit home office revealed. “Everyone wants to refi and we don’t have the funds.” Always the salesman, the Quicken rep said, ``I don’t know why anyone is waiting, rates will never go below 3 percent,” inspiring a hearty laugh from this writer.
HousingWire.com supported the Quicken rep’s story,
Put simply, many lenders are so busy right now trying to process the loan applications they’ve already received that they’re pushing their interest rates well above the prevailing market rate so they can actually deliver on the loans they already have in their pipeline.
On Bankrate, for example, the advertised rates that showed up when HousingWire searched Tuesday ranged from 4.75% all the way up to 6% for a refinance. Even Bankrate itself is acknowledging that those rates are well beyond the expected level.
After the call I realized the problem was more systemic: Something amiss in the wholesale funding market. Memories of 2008 came flooding back. And now, today, CNBC reports,
The Federal Reserve stepped into financial markets Thursday for the second day in a row and the third time this week, this time dramatically ramping up asset purchases amid the turmoil created by the coronavirus.
“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in an early afternoon announcement amid a washout on Wall Street that was heading toward the worst day since 1987.
Starting today the Fed will flood the market with $1.5 trillion in the repo and bond markets.
“The virus was the catalyst but it’s not the cause,” said Christopher Whalen, founder of Whalen Global Advisors and fan of Ludwig von Mises. “Both bonds and equities were inflated rather dramatically by our friends at the Fed. You’re seeing the end game for monetary policy here, which is at a certain point you have to stop. Otherwise you get grotesque asset bubbles like we saw, and the engine just runs out of fuel.”
The 10-year U.S. Treasury bond is yielding less than 80 basis points as I write. The DJIA is unimpressed with the Fed’s bazooka blast, down nearly 2,000 points.
For the Quicken Rep and his pronouncement about mortgage rates never breaking 3 percent, I direct his attention to a New York Times article from just three months ago. Liz Alderman wrote, “Money is so cheap — a 20-year mortgage can be had in Paris or Frankfurt at a rate of less than 1 percent.”
Never, say never.
