Today’s rally in MBS has taken the 30 yr FNMA coupon to below 4% at 3.98%, for the first time since May 20th. Combining the treasury rally with continued purchases by the Federal Reserve (where Bullard wants to extend past the expected expiration in March) and likely end of yr buying by banks has helped to achieve for now a key Fed goal and that is to keep mortgage rates low in order to spur demand. The move lower in rates interestingly comes on the day that the consumer confidence data reveals that those that plan to buy a home within 6 mo’s is at the lowest level since ’82 and last week’s purchase component of the weekly MBA data is at a 12 year low. Square this with the recent tax credit induced home sales boost and the overall picture becomes cloudy I agree but it seems that its price much more than the cost of money that is and will drive purchase demand thru this cycle (unlike the previous one), in addition of course to the jobs picture.
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