I got an email from Dave Ross on Friday. Looks like he's interested in having me on his show to talk about "home prices." More details to come as I get them...
Yes, go for it! You should be able to take some flex time so you can come in late that day. It would be better to be down in the studio with him if possible, as the audio quality will be greatly superior to that when one party is phoning in.
The people from the show got back to me today, and I'll be on early in the 11:00 hour, just after some guy from the Washington Mortgage Brokers' Association.
The subject is "The sub prime crisis: Who's responsible, how low could prices go, should anything be done to prevent another one, or should the market be left alone?"
The people from the show got back to me today, and I'll be on early in the 11:00 hour, just after some guy from the Washington Mortgage Brokers' Association.
The subject is "The sub prime crisis: Who's responsible, how low could prices go, should anything be done to prevent another one, or should the market be left alone?"
Piece of advice you didn't ask for:
Concentrate on the *benefits* of lower home prices. "Our children will be able to afford houses" and "I'm upset that regular families can't afford to buy houses due to reckless lending practices". People love optimists so much that they'll fairly quickly discredit and ignore the arguments of someone who says something they don't like the sound of.
Even though it's just being realistic, regular people don't like pessimistic viewpoints. Roubini is a good example. He goes on a show, depresses the hell out of everyone (even though I'm sure he's correct in what he says) and now he's this guy they bring on when they want the most depressing view available.
That was some great advice, CM. I was hoping to work the positive angle in, but the call ended much sooner than I thought it would. I got just under four minutes on-air, whereas the producer had led me to believe it would be closer to 15 minutes. I got the impression that the hour was more about talking with the mortgage broker and loans specifically than it was talking about home prices. My segment felt a bit out of place with Dave's question about how far prices might fall.
Oh well. Maybe next time I can make it down to the studio as RedmondJP suggested.
That was some great advice, CM. I was hoping to work the positive angle in, but the call ended much sooner than I thought it would. I got just under four minutes on-air, whereas the producer had led me to believe it would be closer to 15 minutes. I got the impression that the hour was more about talking with the mortgage broker and loans specifically than it was talking about home prices. My segment felt a bit out of place with Dave's question about how far prices might fall.
Oh well. Maybe next time I can make it down to the studio as RedmondJP suggested.
I listened to the segment and thought it went well, but very short! Purposefully tuning in to "talk radio" reminded me why I don't listen to it. Not keen on the host, and too many nut jobs calling in, present company excluded of course.
Yeah I want to counter a lot of this stuff that some of the callers are saying, but I also don't want to butt in and interrupt, etc. I'm trying to strike a balance between being polite and making the important points in a concise manner.
Tim, I don't think you would sound rude at all if you would counter a lot of this stuff. I'm hearing a lot of the "we're special" mantra from Goldy and a lot of the callers. I think you should also have brought up the incomes not keeping up with home prices...you know, the whole financial side of things.
Mortgage rates are tied to the 10 year treasury note.
Really? I thought some were tied to the LIBOR, and others to different indexes. It certainly doesn't seem as if mortgage rates are following T-bills since the two have been diverging lately (i.e. mortgage rates going up while treasury notes drop).
15 and 30-yr fixed generally track to the long bond
Really? I've heard that Jumbo loans had been rising despite declines in treasuries. Have the 15 and 30 year fixed mortgages really been tracking the long bond over the last 10 months, or have the divergences that have been appearing in the broader credit market been at work with fixed mortgage rates too?
15 and 30-yr fixed generally track to the long bond
Really? I've heard that Jumbo loans had been rising despite declines in treasuries. Have the 15 and 30 year fixed mortgages really been tracking the long bond over the last 10 months, or have the divergences that have been appearing in the broader credit market been at work with fixed mortgage rates too?
I say "generally" as in closely, not exactly. The spread has been widening due to instability in the MBS market, poor GSE financials, etc. The risk gap has been rising - but over the long run the relationship is quite strong.
As the article points out, mortgage rates are set solely by the demand for mortgage securities. In "normal" times mortgage security rates follow treasuries very closely. However, these aren't normal times, and mortgage securities have been leading a life all their own, completely independent of treasury rates. As a point of fact, rates on 15 and 30 year fixed mortgages have been trending UP recently, even though the 10 year T-bill rate has been heading down.
Bloomberg says:
Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump. The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist in Stamford, Connecticut, wrote in a note to clients today. A lack of liquidity has ``led to stunning air-pockets in price levels.''
The simple fact is that investors have been getting skittish about any and all mortgage securities and have been demanding higher and higher premiums for them. So there you have it: investor demand for mortgage securities determines the mortgage rate.
Which is why I tried to keep it simple on the air, with my response to the effect that mortgage rates are based on the lenders' perceived risk, not the Fed rates.
As I ponder the issue of mortgage rates a bit more, it occurs to me that one thing that might be confusing everyone is the fact that they seemed to follow treasury rates for so long. But just because two things are travelling side by side for a period of time doesn't mean they are necessarily "linked".
For example, you could observe a brown car that appears to be following a red one for 1000 miles, even turning on the same road exits. However, you could find that the only thing that was happening was that both cars were going to the same town, and once they arrived at the location they split up and travelled to different neighbourhoods. Yes, the brown car happened to be headed in the same direction as the red one for quite a while, but it wasn't actually following the red one.
Mortgage rates are tied to the 10 year treasury note.
O RLY?
Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.
The difference in yields, or spread, on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. ...
The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist ...
As I ponder the issue of mortgage rates a bit more, it occurs to me that one thing that might be confusing everyone is the fact that they seemed to follow treasury rates for so long. But just because two things are travelling side by side for a period of time doesn't mean they are necessarily "linked".
You'll note I said "track" not "tied to" in my earlier post. Important difference
Yes, they are correlated, but the link is not causative. Two long term, historically low risk investments would logically move together in price/yield as overall interest rates move. But when risk rises in one, not the other - they diverge. historically, the are close enought that the 10-year bond has often been used as a hedge for mortgage exposure
Pretty basic finance 101 stuff. Come to think of it, where is finance these days?
Pretty basic finance 101 stuff. Come to think of it, where is finance these days?
I think he's now known as nostra aka "please buy a home, please" aka "desperate" aka "not knowing how we're going to make the mortgage payment next month" aka "poser"
Yes, they are correlated, but the link is not causative. Two long term, historically low risk investments would logically move together in price/yield as overall interest rates move. But when risk rises in one, not the other - they diverge. historically, the are close enought that the 10-year bond has often been used as a hedge for mortgage exposure
Comments
Let us know when you're scheduled to be on the air.
The subject is "The sub prime crisis: Who's responsible, how low could prices go, should anything be done to prevent another one, or should the market be left alone?"
Piece of advice you didn't ask for:
Concentrate on the *benefits* of lower home prices. "Our children will be able to afford houses" and "I'm upset that regular families can't afford to buy houses due to reckless lending practices". People love optimists so much that they'll fairly quickly discredit and ignore the arguments of someone who says something they don't like the sound of.
Even though it's just being realistic, regular people don't like pessimistic viewpoints. Roubini is a good example. He goes on a show, depresses the hell out of everyone (even though I'm sure he's correct in what he says) and now he's this guy they bring on when they want the most depressing view available.
Oh well. Maybe next time I can make it down to the studio as RedmondJP suggested.
I listened to the segment and thought it went well, but very short! Purposefully tuning in to "talk radio" reminded me why I don't listen to it. Not keen on the host, and too many nut jobs calling in, present company excluded of course.
Tune in at 11:05 to see how big a fool I make of myself.
Really? I thought some were tied to the LIBOR, and others to different indexes. It certainly doesn't seem as if mortgage rates are following T-bills since the two have been diverging lately (i.e. mortgage rates going up while treasury notes drop).
15 and 30-yr fixed generally track to the long bond
Really? I've heard that Jumbo loans had been rising despite declines in treasuries. Have the 15 and 30 year fixed mortgages really been tracking the long bond over the last 10 months, or have the divergences that have been appearing in the broader credit market been at work with fixed mortgage rates too?
I say "generally" as in closely, not exactly. The spread has been widening due to instability in the MBS market, poor GSE financials, etc. The risk gap has been rising - but over the long run the relationship is quite strong.
you can see 5 year trend here
http://www.themortgagereports.com/2008/03/5-things-that-d.html
As the article points out, mortgage rates are set solely by the demand for mortgage securities. In "normal" times mortgage security rates follow treasuries very closely. However, these aren't normal times, and mortgage securities have been leading a life all their own, completely independent of treasury rates. As a point of fact, rates on 15 and 30 year fixed mortgages have been trending UP recently, even though the 10 year T-bill rate has been heading down.
Bloomberg says:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6YQBSTD2Rgg&refer=home
The simple fact is that investors have been getting skittish about any and all mortgage securities and have been demanding higher and higher premiums for them. So there you have it: investor demand for mortgage securities determines the mortgage rate.
Which is why I tried to keep it simple on the air, with my response to the effect that mortgage rates are based on the lenders' perceived risk, not the Fed rates.
For example, you could observe a brown car that appears to be following a red one for 1000 miles, even turning on the same road exits. However, you could find that the only thing that was happening was that both cars were going to the same town, and once they arrived at the location they split up and travelled to different neighbourhoods. Yes, the brown car happened to be headed in the same direction as the red one for quite a while, but it wasn't actually following the red one.
O RLY?
Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.
The difference in yields, or spread, on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. ...
The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist ...
Courtesy of CR.
http://calculatedrisk.blogspot.com/2008 ... terly.html
Yes, they are correlated, but the link is not causative. Two long term, historically low risk investments would logically move together in price/yield as overall interest rates move. But when risk rises in one, not the other - they diverge. historically, the are close enought that the 10-year bond has often been used as a hedge for mortgage exposure
Pretty basic finance 101 stuff. Come to think of it, where is finance these days?
I think he's now known as nostra aka "please buy a home, please" aka "desperate" aka "not knowing how we're going to make the mortgage payment next month" aka "poser"
Agree completely.
http://finance.yahoo.com/loans/article/ ... d=oneclick
See attached file as well.