Thursday, March 5, 1009

In yesterday's commentary I provided a synopsis of the government's Home Affordability and Stability plan. If you are interested in more detailed information see the website www.financialstability.gov.

Today is another day - same old story. The direction of mortgage interest rates is being dictated by trading action in the stock markets. Since Friday, February 20th I have been writing in this space about a stock market plunge and the resulting support for the prospects of steady to fractionally lower mortgage interest rates it would create. In my judgment we are currently in the "sweet-spot" in terms of the amount of support mortgage interest rates can expect as a result of the swoon in global stock markets. Before the month is over I believe the worst of the sell-off in the stock markets will have passed.

As you undoubtedly know, markets are made up of both buyers and sellers. No matter how strong the desire to sell or buy may be - the transaction can not be completed without the opposing party directly participating in the transaction.

The "so what" factor here is extremely important - consider this - once all the sellers have been indentified and satisfied, that only leaves one component in the market place - active and aggressive buyers who suddenly realize they have the opportunity to acquire stocks at the low point in the market cycle. This market dynamic has never failed before and it will not fail this time around.

(An insider's opinion is the stock market as indexed by the Dow will put in a low on or about March 23rd.)

Against this backdrop the Treasury department will be looking to issue a river of $2.5 trillion of debt. Without the "flight-to-quality" support of capital fleeing the volatility of the stock markets for the relative save harbor of the Treasury market - treasury yields will rise and drag mortgage interest rates higher as they go.

The hope is that an increasing number of buyers will come to see the greatest mortgage financing opportunity in a generation is now available.

There is an old Chinese proverb that says, "Ever banquet must come to an end." The same can be said for cycles favoring lower mortgage interest rates.