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Freddie 30 Year Fixed Rate Mortgage Rates At Fresh All Time Lows Are Little Help For Housing; Rosenberg's Views On Pervasive "Revolts"
Today, Freddie Mac announced that the 30 Year FRM declined to a new all time record low, dropping by 1 bp to 4.57% from the week before. Yet even as mortgage rates hit fresh weekly records courtesy of the Fed's undisputed control of the mortgage market, the only thing increasingly more certain is that even at 0.00% there is precious little marginal demand in the primary market for housing. Here are the latest observations from Rosie on precisely this phenomenon, and much more.
The bond market remains the only game in town when it comes to stimulating the U.S. economy. The commensurate slide in mortgage rates has triggered a mini-boom in mortgage refinancing activity, which rose 9.2% in the July 2nd week, on top of a 12.6% surge the week before — up 157% over the past year to boot. This is helping, at least at the margin, put some cash into homeowner’s pocketbooks.
Still, just to show what little effect it is having, refinancing activity in the U.S. is still some 40% lower than it was the last time we had a major rally in the bond market in late 2008 and early 2009. In fact, coming out of the 1990-91 recession and the 2001 recession, the YoY trend in mortgage refinancing was over 1,000%(!), not 157%, just to put this in some perspective. The reason for the anemic growth this time around is because at the historic lows in yields, which we saw a year and half ago, just about everyone who could at the time managed to refinance, so today’s rally does them little good. Plus, with one in four mortgage debtors “upside down”, they don’t have the ability to refinance. But every penny counts, and the bond market is doing the best it can to get things going.
What is really amazing is how most strategists hate the bond market, and only see inflation and interest rates having to rise. But yet, when asked why it is they are so bullish on equities, the quick and dirty answer is “well, look at how low bond yields are.” Go figure.
If there is a disturbing development, it is the lack of response on the part of potential homebuyers to the downdraft in mortgage rates. Demand remains anemic, and perhaps this reflects an aversion to taking on debt, and an aversion to buying a depreciating asset. Or perhaps it reflects the allure of landlords dropping their apartment rents and thereby upsetting the rent-buy decision balance. Maybe the White House should embark on a strategy of forcing landlords to hike their rents in a quest to revive the homeownership rate — it’s not as if this group doesn’t believe in government intrusion into the economy.
So, for the third week in a row, and despite a 13bp bond-induced decline in mortgage rates, applications for new purchases fell (by 2%) and are down 35% from year-ago levels; and those year-ago levels were already down 12%. So, after plunging 18% in May and then by 15% in June, mortgage apps for new home purchases are already down 3.4% so far in July. Clearly, as far as the Treasury market is concerned, more needs to be done — and since Mr. Bernanke is done cutting rates, it will be up to Mr. Bond to carry the ball, and likely a little further.
And as bond markets and monetary policy go hand in hand, here is Rosie's latest view on Fed money printing spasms:
NO MORE HELP FROM MONETARY POLICY?
We shall see.
But, indeed, that was the consistent tone from the various Fed officials who dominated the tapes yesterday. Kansas City Fed President Hoenig refuses to budge and wants an immediate hike in the funds rate to 1%, and said he doesn't believe every problem can be solved by the central bank. (Oh, but in a credit collapse, the Fed has to be part of the solution.) Richmond’s Lacker thinks it’s time for the Fed to withdraw its support from the MBS market. And, on CNBC, Dallas FRB President Fisher stated emphatically that even as he trims his economic growth forecast, the Fed has “done enough.”
So, there is a taxpayer revolt going on. There is a revolt going on among the Fed District Bank Presidents too (others like Plosser and Bullard also want the press statement toughened up). For Paul Krugman, these revolts must be revolting.Meanwhile, we are seeing first-hand how the economy operates when the policy stimulus are taken away — for example, a 0.8% annualized growth rate in real final sales as we saw in the first quarter. Don’t think for a second that we are going to see an upturn without some major exogenous shock. If it’s not the Fed or more fiscal spending, then it will have to be China (wasn’t it the world’s saviour in late 2008? Can it turn a blind eye to its credit and property bubble at the same time?), the ECB (will more ease peeve off the Germans?) or perhaps a payroll tax holiday in the U.S.A. (likely a better idea than turning the economy into a welfare state) or anything that will lift this cloud of uncertainty over the small business sector in particular (but is it too late to make any changes to the health care overhaul?).
Lastly, here are some charts which will hopefully protect the broader population from the "V-shaped recovery" charlatans.
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even cnbc cut off the pacific valley REIT guy as he was spouting off the bull reasons for RE
wait...im crashing, I feel like shit, put the damn needle back in my arm, it will be better i promise, its best for everybody....
@ Red Neck
What we want is a stable and prosperous economic system. We do not have that now. We have a Ponzi economy. Educate yourself.
I fully agree that we have a ponzi economy, and the throttle to that ponzi scheme was at max power under the Bush administration.
The ponzi scheme needs to be unwound, but it needs to be done orderly and methodically, so that true organic growth can replace the duck tape and tinker toys that currently hold our economy together.
But that's not what's advocated around here. You guys have an apocalyptic death wish for this country, driven by a reckless and irresponsible desire to see Obama fail.
You don't solve one social evil with another, and crashing the system would cause unthinkable suffering to 300 million Americans, most of whom do not deserve such a fate.
We need to pull America out of the ditch, then solve the myriad of problems that we face in a responsible manner. There's too much "burn, baby burn" around here.
The bottom line is that massive deleveraging must and one way or another will happen across all levels of society.
The sooner that happens the better. Really. In theory this could be done in an orderly and methodical manner but Obama has instead put the pedal to the metal with even more Ponzi believing that in the end enlightened central planning with the necessary authority will take care of all problems.
And he's just warming up.
Oh, and Bush isn't president any more.
Burn, baby burn.
Maybe you didn't notice but your hero keep Bernanke and Geithner from the Bush team. He then went on to extend the ponzi by any means necessary. You can't reform the system from the inside; the system created the ponzi. People like you are part of the problem.
Make no mistake, Obama is not my hero.
On the other hand, I don't willfully jerk myself off by sniffing the right-wing, wing-nut, political catnip that all of you have glued on your upper lip.
Reality doesn't have wings.
The ponzi started way before Bush I and II.
Crashing the system would cause the political elite of this country to suffer like the bottom 2 quintiles of this country. The only people who have benefitted from the "recovery" are the political elite of which a large number are Democrats. However; it's not about Republicans and Democrats. It's about the criminal banking cartel.
Ben Bernanke, Timmy G. and the banking cartel have an apocalyptic death wish for this country driven by reckless and irresponsible desire to loot the country.
Is that what your whole "Faux News Channel" avatar is all about? You think that that's why we discuss the collapse, because we want to see "The Won" fail? Sure, some people on this board still mistakenly (IMHO) cling to the idea that the great red/blue divide means anything, but a great number of us leave that distinction at the front door. Politicians are inherently a very corruptible breed. They, like the majority of us, suffer from extreme information asymetry. They regulate industries of which they practically know nothing about. That leaves them especially vulnerable to the special interests. Their only concern, in fact the very essence of their profession, is to get re-elected. Would we be better off if all senators, congressmen/women, and presidents were limited to one term? Maybe. The cynic in me always fears that the rats always find a way to rise to the top, but it would at least prevent the idea that politics is somehow a career. If our politicians couldn't be counted on to be there next time, then maybe each of us would have a higher incentive to do more legwork since there wouldn't be anyone to rely on to "take care of us".
The place is going to burn whether or not Obama is at the helm. It's baked in the cake. I shared this link on another thread today:
http://youarenotsosmart.com/2010/07/07/extinction-burst/
That's what we're focusing on. Knowing that when the paradigm shift presents itself (compound interest assures us that a shift will come), people, that includes our elected leaders, will do ANYTHING they can to put the genie back in the bottle. That is where some of the danger will come from. Cognitive dissonance is a bitch... and no, not our fellow commentator. I like him very much!
Mortgage rates at or near all-time lows yet they are not low enough.
It doesn't matter how much you beat a dead horse it ain't going to run faster.
Maybe the Fed can do direct purchase/refi's at 0% interest rate. That'll stimulate demand...
Beating a dead horse will never make him run faster... this horse is dead and rotting for quite a while. Japan tried every trick in the book and they will still collapse.
The myth of Helicopters is coming into full view now.
just to restate the obvious:
for upwards of 60 years, Freddie, Fanny, the real estate agents, and everyone else
preached incessantly that a home is an investment,
that home prices always go up in the long term.
(I always saw it as a commodity, and even though I have learned how to do
plumbing, carpentry, electric wiring, bricklaying, painting, sheet rock, tile,
and other stuff my daddy never taught me, its still something that gets used up,
worn down, and depreciates in real value....)
so gradually, people abandoned their savings accounts in favor of buying bigger houses.
and they got burned.
It could be a long, long, long time before anyone tries that again ....
I too think this is dawning on people. Back in the '50's-'70's you could buy house relatively cheaply (also partly because they were more modest - which is good), and you were going to work at the same employer for 20-40 years. You were relatively stable and could predict where you were going to live perhaps all the way to retirement, and people did not remodel every 5-10 years.
Now, housing seems like such a bad investment all around - you need mobility v. an illiquid asset (with a 6% commission to get out), maintenance, taxes, interest, depreciation, etc. It's becoming a burden as opposed to a hearth for an entire generation. Of course, this transition in perception will take a long time to play out.
While I don't think buyers think of it this way - depending upon your time horizon - why would you buy during a period of low interest rates? Sure you get a low monthly payment, but what if you want to sell and interest rates have RISEN in the meantime. All other things being equal, that will put downward pressure on prices, as affordability will go down.
Lastly, I think strategic defaults will be the nail in the coffin of the social fabric. As home prices take another leg down, more people will simply stop paying. Will benefit JWN, ANF, etc. (not that I'd want to be long) v. BAC, JPM, etc. And eventually home prices will really drop as banks have to sell their shadow inventory. It's a negative feedback loop that can't be saved just because of low interest rates.
Overall for costs to the economy, especially the effects of entitlement costs, getting burned on home equity is not good given the demographics.
The middle class need to pull equity out of their homes to retire.
Mark Beck
Drag it with a chain to the slaughterhouse.
If you don't laugh at the situation, you'll have to cry!
so I should refi now? are they still giving away toasters?
Clock radio. Better have at least 20% equity left though
There's the rub...
No! Wait until rates get down well below 4% ... maybe near 3%!
Of course if another 20% drop in value will put you under the 20% equity line, then do it now.
dont miss it, obama spokesman/cnbc anchor haines going beserk defending obamas negligence in BP spill
I'm surprised some group of lawyers hasn't begun a product liability class action lawsuit on behalf of the American people against the Federal Reserve.
After all, the cash they are manufacturing and distributing has all sorts of major defects.
It's time to view the Federal Reserve as a manufacturing company with one product: Dollars.
And hold them accountable.
Too bad they figured out how to manufacture a product without the requirement of labor.
They make it magically appear and then pass it around to their family and friends.
And what an amazing product it is. For no cost to their family and friends, their family and friends all of a sudden can steal the labor of the people.
There actually was a class action suit filed in Charlotte against the FED, that was reported here by Tyler a month or two ago, yet it was swept under the rug and out of the media limelight. The only way to get attention is going to be 10 million people ready to storm the Capital Building. Otherwise, we will just fall into the abyss broke.
There are too many people around who remember
riots, fires, breaking windows, tear gas, and all that stuff.
It didn't work before and it won't work now.
curious, though, there are an awful lot of folks who seem to have just stopped making payments.
And their ranks keep on swelling all the time.
They don't seem to be members of any group or organization, there doesn't seem to be any planning or organizing or protest marches or loudspeakers.
They are just not paying anymore.
It could get tough on the banking business if the trend increases ...
or the fed.gov if more and more people stop paying their taxes.
No a**hole...(Red Neck Repugnicant
)
We want our children to have a chance which means forgoing today's pleasures so as not to burden their futures for our consumption needs today...
The truth is, it's not our children - never mind our grand children - that are going to pay the price for thirty years of a ponzi-economy based on debt-fueled consumption, it's us. those here and now. Our children and grand children do not have "jobs", retirement savings and pensions that are going to get wiped out as the ponzi-economy implodes; it is us. Our children and grand children will be just fine as the system will hit "reset" before they ever start working, saving and investing. It is our mother, father, sister, brother and self that we should be worried about.
Only Thirty years?
What will the re-set look like?
Hopefully our children will have the balls to do what we have not been willing to do yet. Round up all these criminals and eliminate them and their mind-set for at least a generation.
I don't think that it is "balls" that are lacking. It is a 'mechanism' to accomplish change. Poitical elites are voted in every 2, 4, or 6 years and then get to do pretty much what they want - without any form of input from those who have to pay for the decisions.
If I want to spend any money from my budget, I need the approval of all who contribute to that budget. It should be the same for politicians. Even if there is a mechanism, how do you stop it from being the tyranny of the majority instead of the tyranny of the politicos that makes the decision.
In the end, how can an entire population (slow to turn as an aircraft carrier in a lake) mobilize to force a law that says "You can only spend what you have - NO MORE DEFICIT governing)?
That sounds logical. I'm not sure if I like it.
To say that Obama is killing the future of our children sounds far more dramatic and dire!
There aren't going to be any fucking children just like there aren't in the socialist-authoritarian paradise of Europe: http://warofillusions.wordpress.com/2009/03/16/the-eus-baby-blues-birth-...
Portugal is 1.49 (not in this table). Let me know if you see any coorelation between the countries with the lowest sub-replacement fertility rates and the countries with the worst entitlement/bankruptcy problems. Give up? The PIGS are all scraping the bottom. Ireland (part of the PIIGS) is actually a fertility leader although it is still below replacement rate. Their still robust Catholic population and recent economic boom/bubble probably account for this.
Incentives matter.
You're an idiot. Please shut the fuck up and refrain yourself from further comments.
Gosh, I never looked at it that way. I mean, you're the math guy. Maybe a 1.29 fertility rate is above replacement level after all. Maybe countries like Greece do have plenty of people pulling the cart but they're just not trying hard enogh. I'll go over the numbers again. Thanks.
Western civilization is killing itself and some of us who don't already have one foot in the grave aren't too damn happy about it.
I like Pinot Noir and wienerschnitzel as much as the next guy but the fact is significant personal liberty has been surrendered in many European countries in exchange for various forms of social "security." Perhaps 'socialist-authoritarian' is a bit of an exaggeration. Not by much though. However I used 'Paradise' sarcastically - get it? - because it's not really a paradise. Sorry to hurt your feelings but you're not exactly Mr. Happy Talk when it comes to America.
+1, but only if there is a "reset". Personally, I see armageddon before a reset, simply because TPTB are (for ideology purposes) content to ride the train into the side of the mountain.
"...Maybe the White House should embark on a strategy of forcing landlords to hike their rents in a quest to revive the homeownership rate — it’s not as if this group doesn’t believe in government intrusion into the economy..."
The WH is only the property manager. Asia "owns" the mortgage (AIG, FNM, FRE, etc).
How do you pay off thirty years of extraordinary growth, based on artificially low interest rates and accounting fraud?
Not with more growth. You pay it off with frugality. It's an accounting identity, jackasses.
Just flatline all the market growth expectations, write down the bonds, and wait 20 years.
Or, go batshit crazy and destroy what remains of the West's asset and investment base with debt.
Hmmmmm.....what'll it be.....
Hahaha! Lock in at those record low rates!
mini-boom in re-finance activity
equals
non-recourse loans being turned into recourse loans
equals
sheeple being turned into debt slaves for life
And I'm sure it counts as a housing sale too!
Thanks, Tyler! This is THE finance blog!
When long rates return to normal (8.5 - 11%, before any inflation scare premium) real estate prices will drop by at least another 50 percent. Plug that into any model you are running and see what happens to banks, and bond values, and pension plans...
as grandma always said, sweeping dust under the rug is not house cleaning....the economy needs a major house cleaning which starts with firing the dust sweepers...
Anyone who could refi already did. As for the rest, super low rates for FHA limit loans ($417K in PA) don't matter if you are underwater and can't meet the L/V ratio, nor does it work if you are holding a jumbo mortgage, or just as bad, an FHA compliant first and the "substitute for a real deposit" second, the latter a common feature of sales in the funny money era of 2004-2007. If you have a first and a second, to get one of these mortgages, you need to pay off that second and that is frequently 10% of the original purchase price of the house. Which, since you've been busily paying not one but 2 mortgages, is not an amount of money you have lying around to use to pay off that pesky second. And by the way, those pesky seconds are still held by the TBTFs at 100%. And - surprise - those seconds are no longer offered. I hear some banks will reduce their rates on the firsts, but only at an exorbitant fee. That is why these tantalizingly low rates are just out of reach for many.
To paraphrase Bruce, it's a debt trap, a suicide rap, and you've to get out while you're young.
Maybe Bernanke could initiate a new program; "DHPP" = Direct House Purchase Program. Get your house appraised, sell it to the government, then, rent it back.
Why hasn't anyone commented on the charts. Looks like a ramp up in private payrolls are just around the corner. I can just hear it now on the cook the books financial media, the bulls back!
What about it? Are McDonald's and strippers jobs becoming plentiful? I can't wait to see a pole in my local Micky'Ds.
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