Homeowner Rescue Alliance

Yeah folks, I’m putting this out there. For everyone looking for a chance to buy a home and lock in that “sub 5%” 30 year fixed mortgage...forget about it.

I’m sure many have read thousands of times about the competition for money from various investment classes. The dominant competition that everyone uses to see what’s going to happen with mortgage rates is that competition between equities and debt or more commonly, stocks and bonds. In the “debt” or “bond” column many people look to the 10 Year Treasury Note as an indicator.

Last week, this instrument got killed as investors sold off treasuries and yields rose to their highest levels since November 2008.

The bottom line here is that rates cannot continue to be in the 4% range. Just like the failing philosophies of financial pundits who claimed we had reached a “new era” in finance where risk was allocated, etc. – some people are out there really holding out thinking rates are going to come back down to sub 5 levels.

I remember a few years ago when I tried to explain to a group of homeowners how investors looked at them. It kinda went like this:

You call it a mortgage, the investor calls it a debt investment or instrument

You call it your loan application, the investor calls it a risk profile

You call it your interest rate, the investor calls it a rate of return or yield

You call it a mortgage payment, the investor calls it a coupon payment

You call it a late payment, the investor calls it default

Your mortgage and all of the other debt is out their competing for dollars with every other investment opportunity out there. In some cases YOU ARE THE INVESTOR. That’s right...your pension, 401K, etc. is probably in some way, shape or form invested in a debt instrument.

As the market worsens and companies get cheaper, and investors start to look for opportunities in equities or stocks. In order to free up their cash and get into stocks (or other investments), they sell their debt investments which include corporate bonds and treasuries. In order to stay in the competition, debt instruments have to be cheaper to acquire (prices go down) and have to “sweeten the returns” for the investors – which means yields (or what you call “interest rate”) have to go up.

Don’t take my word for it, educate yourself and watch that competition happen. It’s kind of interesting once you get a little understanding.