Posted on 11/28/2016 10:41:10 AM PST by Lorianne
While rising treasury yields may be music to the ears of savers who have been crushed by low interest rates over the past 7 years, they're a bit of downer for the overwhelming majority of Americans that have been funding their lavish lifestyles with cheap debt. Yes, sadly the days of upgrading to the $65,000 luxury car despite a $40,000 annual salary, because you can "afford it" so long as you can cover the low monthly payments courtesy of 7-year terms and low interest rates, may finally be coming to an end.
But auto OEM's aren't the only ones about to get crushed by the "normalization" of interest rate policies in the U.S. As the Wall Street Journal points out, according to the Mortgage Bankers Association, mortgage refinancings are set to drop 46% in 2017. And with many American's funding their daily expenses with "cash-out" mortgage refi's, pretty much everyone selling goods to consumers, which happens to represent about two-thirds of the economy, has reason for concern.
The fast rise in rates has spurred homeowners to pull back from refinancing their mortgages. Applications dropped 3% in the week ended Nov. 18 from the prior one, the seventh consecutive weekly decline, and the second since Election Day, according to data released Wednesday by the Mortgage Bankers Association.
The MBA estimates refinances will fall 46% next year, to $484 billion, which will hurt Americans’ ability to free up cash by reducing the cost of their monthly mortgages. The fall in refinances also will hit an important area of consumer-loan growth for banks. To slow the possible damage, banks already are pitching riskier loans that come with adjustable interest rates or allow borrowers to pull more equity out of their homes.
“The increase in rate has shocked consumers…I didn’t expect it either,” said Dave Norris, chief revenue officer at LoanDepot, the 10th largest mortgage lender in the U.S. by loan volume.
This month’s rate increase has eliminated a large share of borrowers for whom refinancing would make financial sense. Before the election, 70% of all borrowers with a 30-year fixed-rate conforming mortgage stood to incur at least a half a percentage point in savings by refinancing. Now only 35% of borrowers are eligible for such savings, said Walter Schmidt, who tracks mortgage-backed securities at FTN Financial.
[charts and graphs at source]
Obama’s QE is at an end.
Oh, for crying out loud. It’s not even 3.25% on a thirty year note. Aiiiyyeeee! Hair on fire time!
The horror of a 4% fixed mortgage means the apocalypse is here.
People tend to adjust their habits to the environment, and they still will.
Being profligate won’t be as enticing, but again it may come to mean less to more people, too. It used to be like “let us eat, drink, and be merry for tomorrow we will die.” Now that we suddenly have a sane savior visible, the “tomorrow we will die” isn’t such a heavy downer any more.
He didn't see this coming? Really?? It was long overdue.
I remember the heady days where one would have killed (figuratively) for that rate.
Who writes this crap?
****
The MBA estimates refinances will fall 46% next year, to $484 billion, which will hurt Americans’ ability to free up cash by reducing the cost of their monthly mortgages.
It means people on the fence are going to jump in and buy before rates go higher. It’s nowhere near the point of unaffordable in most areas. Maybe CA, NY and DC will be pinched but they need pinching, they’ve gotten bubbly. Nobody else has.
The consumer spending spree will start to curtail -— reality will come back for some.
With no Hillary to swear-in, Obama has no incentives to do another QE after they lost the election.
We’ll see......
I think they are looking a bit forward. People buy a payment, not a price. What this will do is depress prices. And if people are already “underwater” on their mortgages it could be dicey for people wanting or needing to sell.
We just refi’d our 32 acres and home last month because of this. The writing was on the wall. We wanted to get to shore before the flood waters started rising. We cleared out our credit card debt at the same time. We’re starting a serious “search for more income”/austerity period in our life. It’s one of the reasons we moved to this property in the first place back in 2011. Our chickens are laying nicely...
I know, right? When my first husband and I went to buy our first home in 1982, the house had an assumable mortgage. At 18% interest!! WOWZA
I’m doing a VA-refinance to lower now from 4.125 to 3.25% — locked in rate.
LOL, poor snowflakes! My first home loan was at 18% and it was a great day when I refinanced to 14% a few years later.
QE was to get reelected and to ensure Obamacare passed. He could give a flying rip about what happens afterward. Hillary was supposed to continue it all, but that won’t be happening.
When I sold real estate I recall helping a young professional couple with a combined income of $50K/yr. At 11% interest rate the most house they could afford was $50K, which in my market was a 2 bed/1.5 bath ranch style around 1000 square feet.
3-4%? You’ve got to be kidding. We were paying 12% on our first house. These whinnies really need to get over themselves.
Our first mortgage in 1987 was 10%. And yes, we thought it was unreasonably high. We refinanced five years ago at 3% on a ten year mortgage. And its a fixed rate. If you can’t afford a fixed rate you can’t afford the mortgage. A variable rate mortgage is financial Russian Roulette with more than one bullet in the gun.
yep
I bought my first house in 1994 because I was certain I’d never see rates that low again in my lifetime. 7.25%.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.