The news is always best at the top and worst at the bottom
And the news from the financial community around the world couldn't get much worse than what we've been hearing lately. It seems that nobody can place a value on their investments and nervous investors are unwilling to buy debt at any price. That makes for an illiquid market and when everyone runs for the exit at the same time, the losses can be dramatic as evidenced by yesterday's big decline in the stock market.
While everyone is running for the hills, money is going into safe havens such as 10 yr Treasuries but here is something interesting that I've noticed. There is beginning to be a disconnect between 10 yr Treasury bonds and mortgage rates. They seemingly always moved in tandem, but now, because of the difficulties in the mortgage market, a move in Treasuries does not have an identical move in mortgage rates.
Chart courtesy of Bankrate.com.
What you're seeing on the far right side is that Treasuries have made a big move lower in interest rates and while mortgage rates have drifted lower since early June, they have not declined at the same pace. The green line representing Treasuries is not quite at the right edge of the chart but the current rate at the close on Thursday was 4.79. Mortgage rates are represented by the rates on the left side of the chart and are indicated at approximately 6.20.
Mortgage rates are still attractive on a long term basis. Rates for borrowers with good credit, a down payment and full documentation will be lower than for loans posing any additional risk to the lender. If you put down 10% instead of 20%, expect a higher rate. If your credit score is 680 instead of 720, expect a higher rate. If you are purchasing a condo rather than a single family home, expect a higher rate.
As to the news, I would expect that a flurry of really bad news will again be hitting the wires today, over the weekend and through next Monday. Worldwide stock markets might take a pounding but as the title of this article states, the news is always best at the top and worst at the bottom. Let's hope we're near the bottom.