Will Mortgage Rates Retreat Back to Respected Levels?

The honest answer to the above question is "I don't know"; however I am very much leaning toward yes! But with that being said we have a lot of factors working against us right now. For instance;

1) A weakening dollar vs. other currencies (Our money is buying less goods)
2) Record Oil Prices (Ridiculous pain at the pump)
3) Continued struggles by financial firms ("Wobbling" views among investors)
4) National housing issues are very much alive and well (Less confidence in a "timely" recovery)
5) Inflation, inflation, inflation (This kills the "value based asset" of the MBS)
6) Overnight lending rate still VERY low (This has done nothing but help BIG business!)

There are a few issues working in our favor right now, however none of them are a "clear and distinct" advantage for Mortgage Backed Securities! For Instance;

1) Hopefully we are closer to a financial markets recovery (Confidence back in this sector)
2) Hopefully rising "short term" lending rates in the Fall (Adds value to the dollar and reduces inflationary risks)
3) Increased confidence in the housing sector recovery (Adds faith in MBS with strong performance and less delinquency)
4) Hopefully a decline in oil prices (This will be a direct reflection of a stronger dollar and financial systems recover)

As you can see from the list and the verbage included in the list that optimism in the "near-term" is lackluster. Hopefully over time the financial systems sector will recover and that will lead to a rising value of the dollar, weakening inflation and decreased oil prices all of which would be great for the economy and in-turn should translate into better interest rates!

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