Posted on 09/22/2010 1:52:32 PM PDT by blam
Why The Lowest 30-Yr Fixed Mortgage Rate In History Is A Bullish Sign
Scott Grannis, Calafia Beach Pundit
Sep. 22, 2010, 3:51 PM
Thanks to 2.5% yields on 10-yr Treasuries and the ongoing improvement in the efficiency and liquidity of the mortgage-backed securities market (which has resulted in a tightening of the spread between conforming and jumbo rates), homebuyers today can take advantage of the lowest 30-yr fixed-rate mortgages in history, whether for a conforming or a jumbo loan.
One reason rates are so low is that demand for mortgage loans is also relatively low, as reflected in the above chart, which shows a measure of all mortgage applications for the purchase of a single-family home. The volume of new mortgage applications has fallen significantly since the peak of the housing market in 2005, but I note that the current volume is still higher than pre-1997 levels. Things have really cooled off, but they haven't ground to a halt by any means.
The other reason for low rates is that demand for high-quality yield is very strong. Investors are willing to accept 2.5% yields on 10-yr Treasuries and 3.4% yields on MBS because they worry about the ability of alternative investments to do better on a risk-adjusted basis. As I've noted before, the last time yields were this low for any meaningful period of time was in the late 1930s and 40s, when investing attitudes were powerfully shaped by depression and deflation.
Looking at both sides of the mortgage equation thus reveals great fear and uncertainty about the future: homebuyers worried that prices might fall further, and investors worried that the entire economy is at risk of a double-dip.
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(Excerpt) Read more at businessinsider.com ...
Apparently I understand nothing about economics or these people are nuts.
They’re nuts.
More jive . What difference does the rate make if you can’t pay the mortgage.
Which country’s treasuries are safer right now than the US? Follow up: how much capacity does that country currently produce in treasury securities?
Some of the 'good news' I've been reading lately makes no sense.
http://www.creditslips.org/creditslips/2010/09/rates-are-low-where-are-all-the-refis.html
Rates are Low--Where Are All the Refis? posted by Adam Levitin Jean Braucher's post on the Hubbard-Mayer housing market reform proposal points to a really interesting question: why is it that despite historically low interest rates, there has been relatively little in the way of refinancings? This is a critical question because the housing market has traditionally been a prime channel through which the Federal Reserve can use interest rates to affect the economy. I've seen one estimate that the missing refinancings would put $90 billion into the pockets of mortgaged households (around 50 million of 'em) every year, without affecting the federal budget. That's real a direct-to-consumer annual stimulus of $1800/mortgaged household. So, what's preventing more refinancing activity? .....
“so this is a bottom for the real estate market”
I play in the stock market a bit and have that argument with a friend of mine about stocks we are watching all the time. From experience I have come to believe that nobody knows where a “bottom” is until things start back up. As long as things are down, a “bottom” may just be a pause before the next drop.
I have a hard time feeling “bullish” about anything with the current crop of nitwits in Washington. Maybe November will make me feel better.
“Which country’s treasuries are safer right now than the US?”
Switzerland
“What they are saying is that all the bad news is already priced into housing and interest rates...”
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That phraseology implies a free market.
Isn’t the Fed keeping a lid on interest rates?
You know plenty. These people are nuts.
They are essentially doubling down on the bet that got us here.
We need to see prices bottom and interest rates rise to put risk back in the game.
As long as this continues, the mess not only deepens, it widens.
One word: Appraisals. If you bought at or near the top, then the value of your house plummeted, it is not easy to refi.
I say this as I sit here waiting for the lawyer to come over so I can sign my refi papers. I got a 4.25% mortgage refi without an appraisal, so it is possible. It is just not easy for most people in different situations.
People buy based on what they can afford for a monthly payment. When interest rates are low, people can afford a more expensive house than they otherwise could. But the reverse is true too. When interest rates rise, housing prices must come down, in order to be able to afford the same monthly payment.
Having interest rates being at historic lows, and owning a home, is like being on the edge of a cliff. When interest rates start rising, it will sap out the equity of your home.
So, is this really a great time to buy? Only if you are willing to stay in the home for a generation, and are content with selling the home for a lower price than you bought it. For people willing to live in the same home forever, it is a good deal. For anyone else, no.
Current available debt to buy in Switzerland?
They said the volume to apply for the re-fi was unprecedented, but the actual approval was very low.
In order to qualify you needed a 720 or higher credit score, and a debt to income ratio of under 25%, and steady income (obviously). We qualified, but most don't, according to the loan officer. I wonder if the tighter rules are keeping the re-fi numbers low, or if our Credit Union just had higher qualification standards.
Utter crap.
The interest rate is the price of money. Cheaper prices mean less demand. Why is there less demand? Well, let’s see: How about a U6 unemployment rate of roughly 17 percent? How about major league uncertainty? How about the prospect of grossly higher taxes and fees (health insurance, automatic repeal of the Bush cuts, crap and tax (oh, excuse me, “Cap & Trade”)), etc.? How about a manipulated and fraudulent housing market that only paused on the way down because of an $8,000 housing subsidy by the feds and ultra-low downpayments (as little as 3.5% for FHA loans)?
We’re in a depression, folks, THAT is why housing sucks. Housing prices need to drop at least another 15%-20% to come in line with an affordable price for the average person, AND the average person will also need to pay down lots of excessive debt and save up for a downpayment. That just isn’t going to happen any time soon. If there is an economic recovery, interest rates will (must) rise - which will suffocate that recovery in its crib...and if the interest rates don’t do it, then the rise in energy prices caused by the recovery will. We’re screwed for at least another 10 years even if we don’t have a major crash in the system (not the market, the economic/political system). It’ll take at least that long to work the excesses out of the system. Look at Japan, still moribund after 21 years of “recession” and stimulus after stimulus. Why? Because they were choking on debt and never cleared it from their system...the same exact mistake is being made by the Fed and the government here. Except we don’t have trade surpluses and massive pools of savings like Japan - we’re an empty shell, no reserves and no means of making enough more to really matter.
This is merely pablum for the (uneducated) masses, and if it lasts until after Election Day, then TPTB will be happy.
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