Jumbo Mortgage Predictions for 2009

Given the turmoil in the real estate business last year, I thought it would be helpful to give an outlook for what to expect in the overall mortgage market this year and what to expected in the luxury sector:

I see rates being driven by two primary factors: downward pressure on Treasury yields and the expansion of mortgage liquidity in the secondary market.To the extent that these forces coincide with each other, interest rates will remain at their present levels or lower. Consider:

Low Treasury yields
Government issues continue to be a safe haven for investors since equity values plummeted in 2008. Late last year, yields on the 10 year and 30 year Treasuries were near generational lows, and since the new year have remained in a close range. With disappointing 4th quarter reports coming in for major Dow components (and the broader market for that matter) and no evidence of recovery in leading economic indicators, the flight to quality can be expected to continue through the next two quarters.

Mortgage liquidity
The two major players in restoring liquidity to the credit markets will be the federal government and eventually private equity:

The purchase of mortgage backed securities by the federal government ($53 billion of a $500 billion commitment to date) to buy troubled assets has lead to a significant narrowing in the spreads so far this year, unleashing a flood of refinance applications over the past 3 weeks.

The return of private equity has already begun, and can be expected to continue as these securities remain available at steep discounts. I’ll reference moves like the acquisition of IndyMac by Michael Dell, George Soros, and others high profile investors to back up this prediction. And given the better than expected performance of the Bear assets manged by BlackRock, mortgage backed securities will look more attractive as investors lose their appetite for low yielding fixed income products and disappointing returns in stocks and commodities.

So what does this mean for the high end real estate market? If sustainable, the mini refi boom generated by the above actions should translate into a refi echo in the jumbo mortgage market by the 3rd quarter as more funds become available. In the meantime, you can follow me on Twitter for day to day updates on mortgage rate movements and breaking industry news.



Have any questions? Looking to apply for an FHA or jumbo mortgage in Washington DC, Virginia, Maryland, or Florida? Just email me and I'll be in touch.