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As Mortgage Rates Go Parabolic, Home Prices Will Soon Be Latest Shoe To Re-drop

Tyler Durden's picture


The negative convexity loop in mortgages is starting to see casualties left and right. The most recent read on the 30 Year Cash Fannie Mortgage rose by 11 bps overnight, and by a stunning 1% in the last month. At 4.703% the prevailing wholesale mortgage rate is back to the highest it has been since May 2010. And while some have speculated that this inflection in rates would have been sufficient to get Americans to jump on refinancing their mortgages, attempting to catch low rates while they can, the jump has been so powerful that to many the now incremental 10% loss in purchasing power does not make a purchase equitable any more. As a result, ceteris paribus, home prices will have to decline by about 10% to compensate for the pick up in rates in just the last month. And since the jump in rates on a duration adjusted basis is even more painful, there will be increase selling of comparable securities as managers look to shed a sudden surge in duration, leading to a further spike in yields, and so forth.

And in terms of retail mortgage rates, i.e., those that are available to the broader plebs, bankrate has just announced that its 30 Year fixed has spiked from 5% to 5.19% overnight - the highest since April 21. Next up: another home pricing crash.



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Thu, 12/16/2010 - 10:37 | 811278 the not so migh...
the not so mighty maximiza's picture

Lower prices are good for the cash on hand types.

Thu, 12/16/2010 - 10:41 | 811299 Rogerwilco
Rogerwilco's picture

Or fools trying to catch falling knives. I see the government stepping in and paying the states to condemn and demolish vacant houses.

Thu, 12/16/2010 - 10:48 | 811318 papaswamp
papaswamp's picture

That is what they are doing in Ireland.

Thu, 12/16/2010 - 12:45 | 811658 dlmaniac
dlmaniac's picture

That way government creates jobs to destruct.HOHO.

Reminds me back then when they argued for moving some Guantamela prisoners to an Illinois prison b/c it'd create jobs. No I didn't make it up.

Thu, 12/16/2010 - 11:12 | 811374 viator
viator's picture

It would be better to build new houses and have the demolition crews follow the

construction crews, ripping them down as fast as they get built. Pure Keynes.

Thu, 12/16/2010 - 11:52 | 811498 DarkAgeAhead
DarkAgeAhead's picture

As covered here and elsewhere, why not?

Perfect example of how what we call GDP is a theft from future well-being for current profit among just a few.

Ecological suicide.

Thu, 12/16/2010 - 13:21 | 811751 Edmon Plume
Edmon Plume's picture

Red shoots?

Thu, 12/16/2010 - 17:00 | 812382 DarkAgeAhead
DarkAgeAhead's picture

Dead, literally disintegrating, decomposing shoots.

Thu, 12/16/2010 - 11:17 | 811391 Raynja
Raynja's picture
They aren't explicit, but that's what they're getting at.

Thu, 12/16/2010 - 11:49 | 811481 DarkAgeAhead
DarkAgeAhead's picture

Government's been demolishing homes for years under the claim of economic revitalization.

That's self-inflicted ecological suicide when you consider the numbers.

Thu, 12/16/2010 - 10:53 | 811332 goldmiddelfinger
goldmiddelfinger's picture

So are silver dollars but they both make a crappy investment

Thu, 12/16/2010 - 13:42 | 811799 ElvisDog
ElvisDog's picture

I realize you are nothing but a stupid troll, but really. A silver dollar has been probably the best possible investment you could have had in 2010.

Thu, 12/16/2010 - 13:46 | 811812 dumpster
dumpster's picture

crappy is in the mind of the fellow with no dough to invest


4.50  to 29  on the way to 80 leaves your comments frozen in mush

Thu, 12/16/2010 - 10:39 | 811282 Ragnarok
Ragnarok's picture


Thu, 12/16/2010 - 10:46 | 811309 Fish Gone Bad
Fish Gone Bad's picture


Thu, 12/16/2010 - 10:56 | 811342 Rodent Freikorps
Rodent Freikorps's picture


Thu, 12/16/2010 - 10:59 | 811349 goldmiddelfinger
goldmiddelfinger's picture

..-.  ---

Thu, 12/16/2010 - 11:16 | 811373 Almost Solvent
Almost Solvent's picture

.. / .-.. --- ...- . / -- --- .-. ... . / -.-. --- -.. .


.. / -.. .. -.. / -. --- - / .--- ..- -. -.- / -.-- --- ..-

Thu, 12/16/2010 - 11:16 | 811388 wolfsonite
wolfsonite's picture

.--.. .- ... .-- --... . .. .---. .---. .-. .. .- --. . ...-- . ..!

Thu, 12/16/2010 - 17:56 | 812577 RockyRacoon
RockyRacoon's picture

You gotta use spaces between words to decode!

Thu, 12/16/2010 - 11:17 | 811389 Rodent Freikorps
Rodent Freikorps's picture

... --- ...

Thu, 12/16/2010 - 11:58 | 811524 bankonzhongguo
bankonzhongguo's picture

.. / .-.. .. -.- . / ... -. .- -.-. -.- ... .-.-.-

Thu, 12/16/2010 - 12:18 | 811579 Rodent Freikorps
Rodent Freikorps's picture

Twinkies rock.

Thu, 12/16/2010 - 12:22 | 811588 dark pools of soros
dark pools of soros's picture

Honk if you like Boobs!



Thu, 12/16/2010 - 17:53 | 812573 RockyRacoon
RockyRacoon's picture

.... --- -. -.-     .... --- -. -.-   !!

Thu, 12/16/2010 - 10:38 | 811285 Ragnarok
Ragnarok's picture
And Now Presenting: Amazing Satellite Images Of The Ghost Cities Of China

Thu, 12/16/2010 - 10:46 | 811305 lance_manion
lance_manion's picture

These won't be empty for long.  These are the future residences where the American slaves they've been purchasing are going to live, spending the rest of their lives working for their new Sino-Masters.  Ni Hao!

Thu, 12/16/2010 - 10:53 | 811315 Caviar Emptor
Caviar Emptor's picture

All part of the plan...US Gov has already planned with China to outsource retirees and the elderly. China will accept them along with direct deposit of all Social Security and Medicare into China government coffers. In exchange they'll provide housing (ghost cities) and cheap labor from the Chinese country side (while receiving funds adjusted to US prices). 

It's a win-win!

Thu, 12/16/2010 - 11:19 | 811400 cossack55
cossack55's picture

Cool. I love Chinese food.  I hope I can drive one of those tricked-out golf carts like in The Villages.  When is my flight?  I'm also looking forward to my porn shoot and groping.

Thu, 12/16/2010 - 11:50 | 811483 LeBalance
LeBalance's picture

They taste just like dog!

Soyrent Gleen.

(I would ask for a pardon for the uncalled for ethnic humor, but I won't.)


Thu, 12/16/2010 - 12:11 | 811557 Almost Solvent
Almost Solvent's picture

Nothing more satisfying than a pasteurized, homogenized, chopped, extruded and formed rib byproduct with high fructose, err, corn sugar flavored sauce! 

Thu, 12/16/2010 - 11:29 | 811431 downrodeo
downrodeo's picture

AHHH, oh no!! the 1 child policy has proven to be an unmitigated disaster!


Seriously though, that is creepy. It looks like a neutron bomb went of or something.

Thu, 12/16/2010 - 11:56 | 811516 chinaguy
chinaguy's picture

1 child policy

I'm surprised no one has picked up on the implications of this yet.

It is going to SLAUGHTER Chinese real estate.

The Chinese middle class has bee putting saving in real estate. they all own more than one home. Come 2015 - 2020, the single child policy comes into its own and these now single kids need homes----ALL OF WHICH will be provided for them by their familes ---meaning come 2015 - 2020 the demand for real estate for the creation of new households will drop to about ZERO Xiao Xing - Xiao Xing

Thu, 12/16/2010 - 12:22 | 811589 Rodent Freikorps
Rodent Freikorps's picture

War brides!

Thu, 12/16/2010 - 12:58 | 811691 ibjamming
ibjamming's picture

They created their own "baby boomer" problem willingly...too many old, not enough young.

Thu, 12/16/2010 - 10:39 | 811287 swanpoint
swanpoint's picture

doom, bitchez!

Thu, 12/16/2010 - 10:40 | 811292 TWORIVER
TWORIVER's picture

What else happened around April 21? Buhler? The market began a 20% drop.

Thu, 12/16/2010 - 10:45 | 811303 SheepDog-One
SheepDog-One's picture

Theres radio ads here from mortgage companies yelling 'BUY NOW! Rates are going up so you gotsta get you one of these here houses NOW before YOUR chance is GONE, LOSER'!
Well, in effect anyway.
All wildly hillarious.

Thu, 12/16/2010 - 10:45 | 811304 scatterbrains
scatterbrains's picture

any loan flippers out there know, is this too much heat to handle ? Can we expect every good credit loan origination with a *rate lock* in the pipeline will get busted by the lender for what ever reason they can find ? "you forgot to cross your T on line 15 page 31 of your loan app. I'm afraid we're going to have to deny your loan."  but but we're suppose to close in 4 days..   sorry.

Thu, 12/16/2010 - 10:55 | 811341 MachoMan
MachoMan's picture

I've never closed on a home that didn't have a locked rate...  maybe it helps to have a lawyer involved to relieve the possibility of crawfishing, but generally speaking the banks would be in breach of contract...  if push comes to shove, they capitulate... 

Thu, 12/16/2010 - 11:39 | 811454 scatterbrains
scatterbrains's picture

I'm mostly refering to the loan brokers that float to the top of "google compare rates" They work on razor thin margins, do all their work via fax and may be located 1000 miles away. I was told they try not to lock the rate because borrowers will bail quick if better rates come along. Consumer protection laws make it easy for the borrower to back out. I did a refi and dumped one for another when rates fell to 4.25  I held my breath hoping rates wouldnt back up thinking they would dump me just as quick.

Thu, 12/16/2010 - 10:44 | 811307 Dr. Richard Head
Dr. Richard Head's picture

Interesting timing of the rate spike considering the Alt-A and Option Only Arm resets we are wading through at this point and time -

Thu, 12/16/2010 - 10:47 | 811310 papaswamp
papaswamp's picture

Most don't have the cash in hand and/or the credit rating to grab the below 5% rates. basically if they didn't refi already...they missed the boat.

Thu, 12/16/2010 - 10:55 | 811340 Max Hunter
Max Hunter's picture

Agreed. The bulk of buying and refi's have been pulled forward..  Could be a little more in the pipeline but next year should get pretty ugly..

Thu, 12/16/2010 - 11:26 | 811423 buzzsaw99
buzzsaw99's picture

Little to nothing down FHA borrowers get a better rate than the 20% down crowd. Look it up. Your gubbermint hates you and your cash.

Thu, 12/16/2010 - 10:46 | 811313 Vacca
Vacca's picture

I hate when Latin rears it's ugly head.

Thu, 12/16/2010 - 10:50 | 811322 I am a Man I am...
I am a Man I am Forty's picture

bond market finally getting interesting

Thu, 12/16/2010 - 10:51 | 811323 hellbilly
hellbilly's picture

Good thing Uncle Ben coming out with QE2

Thu, 12/16/2010 - 10:51 | 811324 cocoablini
cocoablini's picture

That shoe dropped 3 years ago and right on our heads. And then there is this commercial real estate thing where people can walk even easier- and its a business decision not a life decision to dump your property

Thu, 12/16/2010 - 10:52 | 811328 Caviar Emptor
Caviar Emptor's picture

All part of the plan....let rates rise on the long end for 2 reasons: -stanch the hemorrhage of dollars to developing markets (hehe) by restoring a semblance of dollar credibility and keeping up appearances of 'growth-driven' rate rises and -keep housing in the cellar so it doesn't blow CPI into the stratosphere and explode the whole QE ZIRP program. Keeps inflation looking artificially low. Monetarists survive to live another day.

Thu, 12/16/2010 - 10:55 | 811336 TexDenim
TexDenim's picture

And don't forget commercial real estate. That is the shoe that never dropped. Or rather, the anvil that never dropped.

Thu, 12/16/2010 - 10:57 | 811346 MachoMan
MachoMan's picture

Err...  dropped and then never showed any signs of recovery, attempted shocking back to life via QE or otherwise.

Thu, 12/16/2010 - 11:19 | 811401 TexDenim
TexDenim's picture

Exactly. This is the dog that never barked in the night. Why is this getting no media attention?

Thu, 12/16/2010 - 12:13 | 811565 MachoMan
MachoMan's picture

No media attention because the failure of CRE is like bread lines for small businesses...  makes the downturn incredibly apparent to all. 

Further, CRE is a decent barometer for willingness to take on debt...  I borrow X amount (X = value of the lease) in return for Y gross profit.  Well, when Y - X is < or = to a wellfare or unemployment check, CRE goes boom.  (obviously this is incredibly simplified, but you get the gist).  [in reality, X is probably far greater than Y].

I actually have quite a few planned uses for CRE that will be profitable...  but, the banks are unwilling to force the developers/owners hands and, therefore, I will not be buying shit.  Also, to make matters worse, I will have to re-evaluate my plans if banks actually do start recognizing losses and we get some meaningful price discovery...

Thu, 12/16/2010 - 10:55 | 811339 hellbilly
hellbilly's picture

How long until we break thur the debt ceiling

Thu, 12/16/2010 - 11:21 | 811406 cossack55
cossack55's picture

46 minutes

Thu, 12/16/2010 - 10:56 | 811345 goldmiddelfinger
goldmiddelfinger's picture

In 2011 the mortgage interest deduction will be severely curtailed on 2nd homes and large mortgage balances if not entirely eliminated. They did it UK.

Thu, 12/16/2010 - 13:01 | 811704 Bicycle Repairman
Bicycle Repairman's picture

What mortgage deduction?  Clinton took mine away a long time ago.

Thu, 12/16/2010 - 11:08 | 811366 Double down
Double down's picture

Higher rates ae good for stocks:)

Thu, 12/16/2010 - 11:17 | 811387 holmes
holmes's picture

Question: would it make sense for a potential first time home buyer to let mortgage rates rise and then buy? At that point, in theory, home prices should have dropped to reflect the rise in mortgages so the cost to the buyer wouldn't be dramatically different and the buyer would have the opportunity at a later date to re-finance when the rates inevitably come down.

Thu, 12/16/2010 - 11:25 | 811412 wolfsonite
wolfsonite's picture

Yes. The idea is to buy into a declining rate environment --- but net-on-net, the bottoming out of the housing market is likely to be a function of price*rate (i.e. a bottoming of monthly payment per given size of house), and from that perspective, it's hard to tell how close to bottoming we are.

Thu, 12/16/2010 - 11:23 | 811410 goober
goober's picture

Interesting thing? About a month or 6 weeks ago I got an overnight fedex from Chase Mtge asking if I wanted to refi from 5.75 to 4.75 for free, no fees at all, just sign here? Of course I was very suspicious but checked it out. Called a mtge banker friend and had her look at it and she said she could not do any better or even as good and that she would go ahead after scoping it out. I hesitated and looked further and about 2 weeks ago closed and sure enough they actually sent a woman to my house to close it? Never happend in my life previously and I have closed on lots of RE in my day? Any way it was 100% free, no fees and I got 4.75 for 30 years so payments were reduced considerable even though balance wasn;t very big. None the less it worked, within days rates started up. I expect many others got the same solicitation ? Crazy 

Thu, 12/16/2010 - 11:32 | 811435 Seasmoke
Seasmoke's picture

Same exact thing happened to my dad, who is very conservative , so i never thought he would go for it but he also closed on it and seems glad that he still looking for the gotcha fine print moment, but so far there hasnt been one, but its still early

Thu, 12/16/2010 - 11:44 | 811466 Rogerwilco
Rogerwilco's picture

We did the same through ETrade mortgage back in '03. They paid us $12 to refi to a lower rate, and even sent over a closer so we never had to leave the house. I later learned that we were part of a bigger deal and our mortgage was sold immediately to Countrywide. This made me suspicious, and as I watched the housing market go crazy it was obvious it would end badly. We decided to pay it off early in '07 (thanks AAPL) and now I'm one of those evil, sidelined investors, waiting for some good bottom fishing.

Thu, 12/16/2010 - 11:51 | 811492 markar
markar's picture

They got themselves out of a fraudently conveyed mortgage/ note

Thu, 12/16/2010 - 11:57 | 811518 DarkAgeAhead
DarkAgeAhead's picture

Sounds like it.  That and somehow now own his left nut and all future progeny that derive from it.

No way a bank offers that just to get out from under a fraudulently conveyed note.  Speaking ignorantly here, there HAS to be more to it.

I'd read the invisible fine print.

Thu, 12/16/2010 - 12:23 | 811593 MachoMan
MachoMan's picture

Don't need fine print...  they paid off the old note (mess) and issued a new clean one...  and when you go to court to contest the judge is going to ask if you thought the deal was too good to be true or did not seem reasonable, why did you do it?  In short, you traded cheaper payments for your right to contest foreclosure/standing.

Now, what is going to be really, really funny is when the banks fuck up transfer of the new note.

I could see the GSEs putting pressure on banks to do this...  "we're gonna put this shit back in your  lap if you don't fix it"...  ok, we issue a new loan on the customers most likely to pay for the note, albeit at a lower rate, dump the note on the GSEs [who get clear title and a little more breathing room since the payments are lower and conceptually default would be less (i know i know)], the bank takes the service charges/origination fees/etc., and you get to start over on the 30 year ticker and are kicking higher interest payments to the note holder.  Win Win for all (although you'll probably be assraped when the mortgage deduction gets monkeyhammered; still might even be cheaper in the end than any alternative though...).

Thu, 12/16/2010 - 16:18 | 812268 DarkAgeAhead
DarkAgeAhead's picture

Hah, true...and great point about when the banks fuck up the transfer of the new note.

I'm already preparing to grab my ankles when they hammer the mortage interest deduction.

There's an all out assault on property ownership.  I can only believe that the small group of powers that be have decided a true feudal system is advantageous than one of fee simple absolutes.  No better way to hammer the masses, than to convince them it's in their best interest, i.e., financially cheaper, to become renters, if not true serfs. 

Thu, 12/16/2010 - 17:14 | 812416 MachoMan
MachoMan's picture

I think our future is far more perverse.  The actual mechanism will probably be more like the powers that be convincing the serfs to tax the shit out of and steal the land of the vassals...  and then we get new vassals appointed via politician maneuvering, these being the "rightful vassals", further entrenching the feudalism.  Although promised the moon, the poor get not even a telescope.

Essentially, anyone with any net assets and without a political lifeline is an easy target for theft...  the collective title for this group of people is the american middle class.

In the end, people can avoid most every tax scheme other than on their land...  they can't move it...  maybe they can throw brushy tarps over their swimming pools to hide satellite censusing, but they can't make the house disappear ala david copperfield.  It's the last haven for desperate municipalities and states.

The worst part about it, state tax sales (at least in my experience) have about as much likelihood as being completely fraudulent/void as they do correctly administered.  Essentially, a person could very well pay the land taxes on the property and the state still foreclose...  this doesn't get enough attention.  More often than not, the sale is deemed final...  completely ridiculous.  They keep up with it worse (yes worse) than the banks do.  I'm confident they'll hide behind their incompetence when they finally get around to intentionally fucking people over.

Thu, 12/16/2010 - 12:35 | 811630 GreenSideUp
GreenSideUp's picture

Agree with you but like DarkAgeAhead says, I'd read the invisible fine print.  

Also, I'd follow up behind the person who came to your home for signing.  Make sure your prior liens are fully satisfied and documented and that everything is properly recorded AND have those documents in your hands. 

A friend once closed like this and when she went to sell her home, NONE of this had been done.  It took over 6 months and a whole hell of a lot of digging to straighten out the mess.  

Thu, 12/16/2010 - 11:30 | 811437 macholatte
macholatte's picture

Nothing going to change much. It's probably marketing hype to get folks off the fence. Two tenths % increase is meaningless to Joe Six Pack.

I, I don't think anybody's continually happy, uh, except idiots, you know. You know, you have to have little moments of depression.
Rube Goldberg

Thu, 12/16/2010 - 11:31 | 811438 b_thunder
b_thunder's picture

additional proof how much the Fed cares about stabilizing housing market.

they may be even cheerleadign home price drop - they can use it as the evidence of deflation!

here's the thinking: if a hose is 20% "under water", and the owner is not walking away, he's not liekly to walk away even if the value is down another 10 or 20%.  the banks on the other hand don't have to mark-to-market, so price drop won't ahve full affect on the banks.  besides, Fed will probably buy all outstanding mortgages at apr if they have to in the QE3.0

in conclusion, Fed doesn't give a flyign fornication about house prices.  all they care about is inflating the market and lettign billionaires sell fof their assets at the top


Thu, 12/16/2010 - 11:39 | 811455 Beatscape
Beatscape's picture

The only hope for RE is if those inflation numbers in the Philly Fed report start to push on RE too.  But the overhang of foreclosures and people under water is too much of a hinderance to light any kind of a fire in RE prices.  The whole mindset for housing has gone from flippers looking to make a quick buck to a burden (taxes, upkeep, insurance) that everyone is running away from.  Plus, the public policy that it is everyone's god given right to own a home is being reconsidered at all levels of government.  They are finally figuring out that people who make under $75K a year are better off renting then owning. There is truly a shift in the public policy to make every American a home owner.  If the sacred cow mortgage tax deduction get put on the chopping block--say goodbye to all the money losing home builders.


Thu, 12/16/2010 - 11:56 | 811509 markar
markar's picture

Forget about inflation pushing up RE. Too much debt and inventory overhang in the pipeline for years. Stated income loans gone. In the sunbelt the only buyers are Canadians with cash.

Thu, 12/16/2010 - 11:54 | 811505 goober
goober's picture

It is quite amazing the public traded homebuilders have been propped up this long. I have made several attempts to short in last year or so and got out as they have been levitated by fed with all manner of tax breaks and they even changed accounting for them to look solvent as if everything is gonna be rosy next week and then next comes and next week ad infinitum? At some point all the illusions will collapse like a black hole sucking in eveything around it. Why , because illusions only last until they don't.

Seasmoke, I doubt your dad is more conservative thinking than myself, but possible. Does he also realize the 2 party thing is a bad joke ? Conservative does not  = republican necessarily

Thu, 12/16/2010 - 11:56 | 811510 Minyan Vince
Minyan Vince's picture

everyone who CAN refinance has...mostly in March 2009, with very little happening recently...where I get this is from direct data from a private mortgage company in which my organization is invested in!

Thu, 12/16/2010 - 13:44 | 811808 dumpster
dumpster's picture

silver a crap investment lol


from 4.50  to 29 bucks on its way to 100..


a comment from a person with zero investment dough to dizz silver ,


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