We are taking a small break from the historic bond market rally this morning as US Treasuries are down marginally from yesterday’s close with the 10yr sitting comfortably at 1.40%. We touched on 1.38% yesterday so I guess we are just taking a little breather from what has been a massive flight-to-quality trade into US Treasuries. The reasons being for what we have been talking about for what seems like forever which is the global economic slowdown as a result of the EU crisis (I saw an article this morning about the deepening of the recession in Britain) and the increased likelihood of additional Fed stimulus in the form of QE3. What the Fed is going to do is up for debate but expect more long-term US Treasury buying and asset purchases in the form of mortgages.

There is also some talk of doing something in the ever growing student loan debt markets. This, in my opinion, is a major issue that has been overshadowed by the housing crisis. College grads that are burdened with student loans that could be as high as $200k after 4yrs of private school but can not afford to pay for these loans because they can not find a job. Those of us who have kids in college know what I am talking about. The problem here goes beyond the obvious. While homeowners have had a chance to refinance their debt at lower rates, this same luxury is not available to these students because the student loan markets are not as efficient as the mortgage market.

Think about this… there is about $150 billion of private student loans and the average rate on new student loans during the past 3 years was 8% to 10% (and the CFPB is worried about deceit in the mortgage market!!). If you do not think this debt burden does not put a strain on the housing markets because it is pretty much eliminating a whole new generation of homeowners then you are crazier than The Situation!! And this does not even get into the parents of these poor souls that feel the need to help their children with this 800lb gorilla. So it would be great to see a scenario where these students who were just trying to get a quality education be given the opportunity to refinance this debt at a rate at least close to what equity strapping homeowners have done as well as our over spending Gov’t. Makes sense…right.

We did get some good news regarding US home prices. The Federal Housing Finance Agency announced yesterday that home prices in May were up .8%. This follows the April number which show a .7% increase. It might not seem like a lot but it beats the hell out of prices dropping and keep in mind that prior to the cowboy days of 2002-2006 home prices generally went up about 5% on a yearly basis. Also the FHFA reported a 3.7% increase year to year. We are still down 17% from the 4/07 peak but it does appear that the worst is behind us at least for now. According to Zillow the housing market hit its bottom in early 2012. Let’s just hope that the crisis in Europe does not reverse this positive momentum.

Last but not least (did I lose you yet??) we got the release of the Weekly MBA Applications Survey. As expected the rates were at all-time lows. Here are the highlights:

• Index is up .9%
• Refinance Index is up 2%
• Purchase Index is down 3%
• The refinance % was 81%
• The average convention 30yr rate was 3.74% w/.43pts
• The average FHA 30yr rate was 3.52% w/.52pts
• The average 15yr rate was 3.07% w/.45pts
• The average 5/1 ARM was 2.68% w/.35pts