The 30-year mortgage rate has jumped more than 1% over the last two months.
What was 3.44% is now 4.56%.
The headfake housing boom of the spring is now dead.
Those companies that prospered from refis and rising real estate prices are living on borrowed time…
Radian Group (NYSE: RDN) is a company that sells mortgage insurance that protects lenders from losses. Radian has had a banner year — that is, until rates started rising.
It is now rolling over into a death spin.
Note the lower highs and lower lows:
The MACD is falling off the table. It wouldn’t surprise me if RDN was back at $6 in a few months.
And it’s no wonder. If rates go up, there is no one left to refinance and no mortgage loans to guarantee.
The news yesterday was that mortgage applications fell to the lowest level in 19 months.
USA Today wrote: “The market composite index, a measure of mortgage loan application volume, decreased 3.0% on a seasonally adjusted basis from one week earlier to the lowest level since November 2011. The refinancing index also fell 3% to its lowest level since November 2011.”
And to think it was just two days ago that Case-Shiller reported housing was booming, prices were rising, and all the big, frosted-hair bimbos were back shilling overpriced hovels…
They might have to wait a bit before buying that new four-door Lexus, because the market just died.
Mortgage Market Dries Up
You could argue that on the surface, with Bernanke buying $45 billion worth of mortgage paper every month, there is nothing to worry about.
There is cause for worry, however, if you look at the mortgage market, which isn’t corrupted by the fat finger of the Fed — because that one is toast.
According to Bloomberg:
U.S. home-loan bonds without government backing are failing to trade at investor auctions at the fastest pace this year as prices tumble after a rally.
The share of non-agency bonds reported by dealers as not trading after being included in widely marketed auctions rose to 44 percent in the first half of June, up from 18 percent last month.
Typical prices for senior securities backed by option adjustable-rate mortgages dropped to 68 cents on the dollar last week from 74 cents a month earlier, as concern that the Federal Reserve will curb its bond buying roils financial markets…
And munis are getting killed.
Again, from Bloomberg: “The U.S. municipal market is poised for its worst monthly loss since 2008, leading investors to offer a record amount of tax-exempt debt as yields surged to 26-month highs.”
The Detroit bankruptcy isn’t helping.
Rates jumped after Bernanke said he was sorta, kinda, maybe thinking about ending QE Infinity over the next few years.
This idea has caused a cascade of negative reaction around the globe. Europe is falling apart, Brent Crude is below $100, Chinese ATMs stopped working, the Indian rupee has crashed…
But I wouldn’t worry. Bernanke won’t stop printing money. He can’t.
When rates go up, the value of bonds paying 1% or 2% plummet in market value. As mortgage rates rise, the price of housing will fall. All those cash buyers from China and Wall Street will get crushed.
Equities will also fall, once you can get 5% returns from bonds.
And as we are already seeing in the bond markets, there are few buyers, and the sellers are holding out for the price they got last month.
Think of what will happen when the value of collateral falls…
Credit will soon dry up.
This means Bernanke will never stop printing money. He can’t afford to!
Heck, given his history, there’s every reason to think he will start printing more — which, of course, means stocks will go up.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
