Mortgage Market Overview – 06/08/2009

Mortgage backed securities (MBS) prices are lower – rates are higher. Higher rates may deepen the housing slump and sideline consumers planning to refinance or but their first home. The combination of an improved economic outlook, rising budget deficits and an 11% drop in the dollar over the last 3 months are potentially inflationary and the catalyst for higher rates. A burst of inflation could sap demand just as the economy is starting to right itself after the biggest contraction in 5 decades. Gasoline prices are up $.54 since May 1, which removes over $70 billion from consumers annual spending borrower. The DOW is down over 100pts, but fixed income assets are not benefiting.

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