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March 8, 2002
Well, it was sure fun while it lasted, profiteering on national economic distress.
However, now that mortgage rates have decisively departed the sixes, all those dot-com refugees who found instant success as mortgage refinancing "specialists" may have to re-re-deploy.
Leaving the sixes for the 7.125-7.25% range (with the lowest fees) could be a lot worse. That the mortgage market is not a lot worse is the story today.
By now, everyone with a TV set knows that in one week's time Alan Greenspan has changed his world view from "the economy is close to turning" to "... an economic expansion is already well underway."
He did not change his mind: the view changed. The economic data are suddenly clear and unanimous: the best measure of retail sales surged 6.2% in February; the Institute for Supply Management's service-sector index (almost 80% of the economy) soared to 58.7% in February from 49.6% in January (50.0% reflects a break-even economy); and in the clincher this morning, the economy added 66,000 jobs in February, the first net gain in seven months.
The Dow has reached 10,600, gaining more than 6% in two weeks... a better gain than many expected for the whole year, and more than a lot of others expected for the decade. Stocks enjoy the unique position of simultaneously predicting, following, and boosting the economy; whether their marvelous performance this last fortnight is durable, it will be fun to see a pop in the ol' 401K statement.
Like old times.
So, why haven't mortgage rates risen more?
Because they didn't fall more.
Just as Mr. Greenspan warns that the recovery underway is likely to be modest because the recession was so shallow, mortgage rates are unlikely to leap because the mortgage market never really bought into fears of a deep recession.
Mortgage rates fell to present levels in the fall of 2000, correctly anticipating an economic downturn. As the Fed began its dramatic cuts in the short-term Fed funds rate, then at 6.50%, down to 3.50%, mortgage rates stayed about where they are now until last September. Another round of Fed funds cuts to 1.75% further encouraged long-term investors that a bad recession had been intercepted, and economic recovery would arrive sooner rather than later.
Here it is. Slim, so far, but here.
For mortgages to jump from the low sevens would require some inflationary portent. There is none. The Fed will begin to take back its emergency easing, as it did in '94 and '99, but as far forward as we can see, all we've lost in mortgages is the sixes.
'Bye.... Miss you already.
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