ANCHOR ENGLISH SAYING:

This has been one of these issues that's now circulating because we see interest rates ticking up that means that means mortgage rates are too, we've had a good recovery in the housing market, how much of a risk now do we see in the second half?

KRISTINA HOOPER, CEO OF INVESTMENT CLIENT STRATGIES AT ALLIANZ GLOBAL INVESTORS ENGLISH SAYING

Well that's a great question, I think to answer it requires taking a step back and thinking of this in terms of more of a historical perspective if you think about the average mortgage rates since 1971 they've been roughly a little over 8.6%. We actually hit our highest level in 1981 well over 18% so while mortgage rates have certainly ticked up and they are well over 4% at this point, we don't anticipate a huge issue until we see rates go up significantly more. If you think about it, if rates go up about 50 basis points more homes are still affordable actually we like to look at this housing affordability index which is really a combination of home prices, mortgage rates and average employee wages and what tell us that is that today we are about roughly three standard deviations away from the average in terms of housing affordability so there's still a lot of reasons why people will want to buy houses and think just looking at the most recent mortgage applications gives some sense of that, we've seen a big drop off in re-fi's but we haven't seen as significant a drop off in home purchases.

ANCHOR ENGLISH SAYING

What happens when and if the fed stops buying mortgage backed securities?

KRISTINA HOOPER, CEO OF INVESTMENT CLIENT STRATGIES AT ALLIANZ GLOBAL INVESTORS ENGLISH SAYING

That's a great question! So all of this has been flamed by taper talk the idea that QE will come to an end or at least significantly taper off or dial down, so to speak. What we're not sure of is exactly what the fed will do because not only have they've been quantitatively easing they've been qualitatively easing it hasn't just been about treasuries they have also been buying mortgages backed securities which is why mortgage rates have been so attractive, and so you'll see comments from figures like Eric Rosengren, Boston Fed Pres., who's argued that when the fed does taper, just taper government securities not mortgage backed securities because mortgage backed securities are so critical to mortgage rates and to this housing recovery so the question becomes what the fed will decide to do and hopefully they will listen to his council and focus more on tapering back the government security purchases as opposed to the MBS purchases.