The poster Chris S is an expert on the bond market. My advice to all my clients who are thinking about buying is to watch the 10 year treasury to get a feel for which way the long term mortgage rates are trending. That the financing of thier home is almost if not more important then the actual home that they buy.
Someone who has not posted for awhile, HLS, and I would spar over this metric as a tracking mechanism. My feel is that it is a decent barometer to at least get the direction of the trend. He felt that it was not always as accurate especially in light of the fact that rate sheets not only change daily but they can change many times in one day, especially if the bond market sells off and rates rise.
So I claim not any expertise in the market, only that if you are ever thinking of buying, that knowing where the bond market is at, is a useful metric for you as a buyer. For instance Chris S noted that the bond market is following a seasonal pattern in a very concise manner right now. This would indicate to any potential buyer that on a seasonal basis, looking to refinance or obtain a new mortgage may be best when the bond market is in a strong rallying mode. I cannot tell you why it is rallying, (or any of my statements are very very speculative) but I can say with confidence that obtaining a mortgage when the bond market is in a heavy rally is SUBSTANTIALLY advantageous then obtaining a mortgage when the bond market is in the crapper. Note this has no bearing on the home selection or the price of the real estate you want to buy.
The real problem here is the premium that has to be added to the 10 year rate in order to “guess” the current long term mortgage rates. It used to be trivial. Pretty much add 1.25 or so onto the 10 year yield and you could get a very accurate estimate for a conforming 30 yr fixed rate. This 1.25 could be a novice guestimate of what orignators will offer you to get the mortgage. Now the secondary market is so f-d up that the number is about double or even more. If you are out of the conforming range it is even higher. Similarly by the government placing moratoriums on foreclosures and such, spreads widen even further. Why would anyone on the secondary market want to purchase a mortgage from an originator if Uncle Sam says they cannot foreclose if the seller defaults? Even if the defaults are insured by the government the timeline is so long that the investors essentially get no return for however long it takes for something to get done. So all those months the seller is living for free, the investors get crapped on. So the spreads for the secondary market grow.
Your questions about where to get a better return on your money and such are good questions but I have no clue man. I am pretty heavy in cash in short term CDs in case I find a home I like. Anyways, like I said, my postings on the 10 year have nothing to do with investing or trying to predict where the market is going. I simply look at the 10 year yield pretty much every day to advise clients who are close to locking a rate or considering buying.
