Money Matters....

Recently I spoke with Martin Barbee, President and Sr. Loan Officer of Intracoastal Mortgage about the volatile market we are experiencing:

MR: Martin, as an expert in your field, how would you define our times?

MB: We are in the grips of historic volatility in the financial markets. There have been large swings in stock prices as well as rates. Unfortunately, I don’t see it ending for some time. A common question we continue to get is why rates are going up when the stock market is going down. A down stock market has historically pointed to lower rates but the game is different.

MR: How so?

MB: A guarantee of bank debt is a safe haven for investors in lieu of mortgage backed securities. Not good for rates.

The government is issuing large sums of treasury debt in order to raise the cash necessary to inject into the financial institutions and support the overall $700 bailout plan (not good for mortgage bonds)

Overall risk in mortgage backed securities remains high even with the explicit guarantee of the Federal Government because the underlying asset could still be depreciating. With the new options of essentially “risk-free” debt why take a chance.

Some large market makers in mortgage backed securities (Lehman Brothers and Bear Stearns) are gone so there are fewer buyers and a smaller market. Remember when the price of a bond goes down the yield (rate) goes up.

MR: So, when do you see rates stabilizing?

MB: When the market establishes a firm floor and the fundamentals return, we should see a more stable rate environment and one that is lower than current levels.

MR: Any time soon?

MB: We are already seeing some positive improvement with rates. That’s not to say we won’t continue to see them jump around but the trend is positive for now.

MR: Should buyers hold out for the stabilization? Or should they purchase while the selection is good and rates are still relatively low?

MB: Rates are still very low on a historic basis. I would encourage buyers to budget off of the current levels rather than hold out for rates we saw in years past. Take advantage of the incentives and selection while they still last.

For more information on mortgages or the market in general, feel free to contact Martin directly at martin@intracoastalmortgage.com or 910.256.7773