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Strategies & Market Trends : Classic TA Workplace
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To: The Freep who wrote (99314)6/15/2004 2:20:11 PM
From: reaper  Read Replies (3) of 209892
 
<<yields going back to 4.2. I'd think, perhaps naively, that if yields do fall like that, the homebuilders aren't gonna fulfill those H+S patterns>>

since this is basically an FA opinion, i will chime in with my FA response.

which is, don't be so sure.

mortgage finance is built on the carry trade. the worst thing that could happen to the carry trade would be for short rates to move up (and make no mistake, they are going up; i think 50 bps on 30 June is pretty much a sure thing at this point) while long rates head back down. a flattening of the curve smokes existing positions, AND makes it marginally less attractive to put on new ones.

all else equal less capital available to the mortgage market means spreads go up. so treasuries going down by 30 bps and spreads going up by 30 bps means no net change in what rate a consumer will be quoted, even though treasury rates are lower.

also note that pricing on home equity lines (which are by definition short money) will get worse both due to the increase in short rates AND the spread widening. a lot of people these days (myself included) are using HELOCs as part of their financing plan for new home purchases.

also note (and i'm pretty sure i've mentioned this before) that the biggest bear you know on real estate (that would be me) caved and bought a fancy 4000+ ft^2 home in a nice Boston suburb. our offer was accepted in early March, as i recall. so anyway, the market has been top-ticked <g>

Cheers
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