The early positive start to the day in the mortgage market was torpedoed by news from the National Association of Realtors indicating the Pending Home Sales Index rose 6.7% in April to 90.3 from 84.6 in March. It was the biggest monthly increase since October 2001 and it took the index 3.2% above its year earlier levels. The substantial improvement was credited to improved home affordability and a new government program that provides an $8,000 tax credit for first-time homebuyers. Participants in the mortgage market are concerned the stronger the economy in general becomes -- and the stronger the housing sector in particular becomes -- the less support will be required from the Fed.
There are those that believe all of this fretting over the pending homes sales index will likely prove nothing more than too much misplaced handwringing - but for the time being it was enough to chase the bargain hunters out of the mortgage market this morning which caused the early price gains to evaporate.
If the Fed chooses to flex their financial muscle tomorrow in an undeniable display of their commitment to keep borrowing interest rates for consumers and businesses low as they enter the credit markets to buy 7- and 10-year Treasury notes -- look for mortgage investors to get the message and nudge mortgage rates lower as well. We'll see - stay tuned!!
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