Friday, June 12, 2009

Mortgage rate update

I see lots of concerns out there about how the rise in bond yields and mortgage rates is going to kill the nascent recovery. To keep things in perspective I offer this updated chart, which contains data as of today from BanxQuote, and reflects "U.S. & Regional composite mortgage rates."

I note that conforming rates have jumped by a full percentage point from their lows of last March. But current rates (5.75%) are still well below the average rate (6.5%) of the past 11 years. I don't see that as a killer, and jumbo rates have hardly risen at all from their lows. Rates have been pushed up by rising confidence that the economy is coming out of a recession, and signs that housing markets are bottoming in many areas of the country. As such, rising rates represent rising demand for loans (the flip side of which is falling demand for bonds, especially the Treasury bonds that drive investor desire for mortgage-backed securities). Rising demand shows no signs of carrying with it the seeds of its own destruction. It would take a concerted effort by the Fed to push rates up to nip this recovery in the bud.


Public Library said...

Housing has another 15-20% down leg to go. Buyers should hang in there for another 3-4 years. There is no need to try and catch a falling knife. Let the blood run into the gutter drain first.

Public Library said...

This goes back to a post I made monts ago about driving around Irvine and witnessing all of the vacant buildings. This one sold for 40% below construction costs...

Scott Grannis said...

Real estate horror stories are everywhere. Houses in the Inland Empire of So. California are selling for 50% off the highs. But the important thing is that they are selling, and in many cases there are bidding wars. Sales activity is up strongly. This market is clearing. Just because prices have fallen substantially does not mean prices have to continue falling.

Public Library said...

Pricing for tech stocks post the bubble were still clearing in the $100's but eventually hit lows in the single digits.

It is very common for people to equate the current value to the most recent past.

The thinking goes if it was $600K 12 months ago, it must be a steal @ $400K. Sorry, life isn't so black and white and housing is a more sticky market than equities or other tradable assets.

If there is a double dip recession, expect carnage for this latest batch of market timers.

There is no need to jump into real estate, residential, commercial or otherwise, until the dust settles which to me = years from now. Missing the first 10% run-up in prices could save you the pain of another 20% down leg.