Still no sign of a threat to housing

Despite the conclusion last month of the Fed's program to purchase $1.25 trillion of mortgage-backed securities, today there is no sign that this has had any meaningful impact on mortgage interest rates. In fact, rates on 30-year fixed-rate jumbo mortgages are now as low as they have ever been. Furthermore, the spread between jumbo and conforming mortgages is now down to 50 bps, not too far above the 25 bps average that prevailed during the 10 years ending mid-2007. The absence of any upward pressure on mortgage rates, coupled with the continued tightening in conforming/jumbo spreads, is a good indication that the mortgage market is efficient and sufficiently liquid. If there's a threat to the housing market out there, it is not hiding in the bond market.

Message to homebuyers: interest rates on 30-year fixed rate mortgages are extremely attractive from an historical perspective, since they are now about as low as they have ever been. Given the great uncertainty surrounding future monetary policy (i.e., how much will the Fed have to raise short-term rates to keep inflation at bay, given the Fed's massive $1 trillion injection of bank reserves), fixed rates also look very attractive relative to adjustable rate mortgages.