We haven’t paid much attention to mortgage rates of late, a fact that is understandable given that the real action in the mortgage market has involved defaults on high-risk loans rather than incremental rate changes. But let’s check back in on the topic.
The point being that there is
The point being that there is no relief in sight for ARM borrowers who are defaulting, right?
That’s right and worse still
That’s right and worse still is that if anything, the Bond Market will force Bernanke’s hand one way or another and rates will probably rise in the future.
From what I’m seeing, the
From what I’m seeing, the only market for mortgage paper right now are the portfolio lenders and the government. Wall Street is basically out as is the foreign investors – we burned them all.
Now government wants to step up and “buy” a larger percentage of that paper in order to bring some more liquidity to the market. That will only stretch so far. After that, it’s back to the investors. The only way the investors will buy mortgage paper in a declining market is if the paper is squeaky clean and the returns are more agressive than our rate of inflation.
Just as many of us were wondering back in 2005 why the RE markets didn’t stabilize and reverse course sooner, I think we should also be in wonder right now that mortgage interest rates aren’t already higher than they are. As far as I can see there’s really no good reason for rates to be below 7% or even 8% right now. A prevailing mortgage interest rate of 10% by 2012 is not beyond my imagination.
Just as with pricing, the longer this distortion goes on unchecked the worse the backlash will be when it finally does return to trend. IMO.
Bugs, you read my mind. I
Bugs, you read my mind. I have been wondering that for a while now. I dont understand why so many people seem to be willing to take low returns in an environment that has inflation accelerating. Most people here know more about this than I, so I can be way off mark here, but I have come up with 3 reasons I think may be helping to suppress interest rates.
1) The threat of big brother. Gov wants this fixed, and if it isn’t, they will fix it. NOW! Fearing regulation, some industry decisions that are not good in the short term may be made to protect the long term.
2) GSE buying. I read an article about how Freddie and Fannie have been buying like mad since their capital requirments were reduced this year. The author quoted someone as saying the problem was that freddie has blown all its capital now and either has to re-raise more, or quit buying. God knows what happens in 12 months when defaults start picking up from ALt-a, but in 2008 extra capital helps.
3) Treasuries suck, stock’s suck, foreign stocks are worried to suck, the dollar sucks, foreign curriencies can go to suck quick. What the hell else are you gonna do? Atleast this pays 6%+, is in dollars, and hopefully free of the schinagnins employeed between 2003-2007. You know, income verification, a down paymet, honest appraisal, new ideas that just might work.
“If the American people ever
“If the American people ever allow the banking system to control their money, first by inflation, then by deflation, their children will one day wake up homeless on the continent their fathers conquered.” – Thomas Jefferson
Rich, I enjoyed the article
Rich, I enjoyed the article and the service. Thank you! One quick question. Do you know any simple source average individual can use to see trends on average price per square foot at zip code or neighborhood level? Also, what (if any) sources are there to get a feel for average price per lot size (as compared to home size). Any help you can provide on that would be greatly appreciated.
Sorry Joe, I do not know of
Sorry Joe, I do not know of such a source… the closest thing I can recommend is esmith’s excellent website http://sdhpi.blogspot.com/ where he tracks same-home sales on a neighborhood level.
rich
Rich,
Some time back (July
Rich,
Some time back (July 2005 to be exact), you had written an excellent two part report on “Why the bond rates are so low?” and “Will they remain low (or rise)?”. That was a bit before the housing bubble exploded in all its glory. Now that we are near apocalyptic time, I am puzzled why bond rates (and mortgage rates) are still so low. The 30 year bond is still below 5% yield and 30 year fixed mortgages are around 6%. During entire 1977-2000 times, 30 year bond was above 5%. Are we in much better shape than all of those 23 years in terms of inflation expectations and stability of $? I can’t think of any sane mind concluding so!
Can you please revisit those fine essays and update them to current times?
Thanks!
Thanks bsr… in my opinion
Thanks bsr… in my opinion there is a vast complacency about inflation risk. There are things like the dollar recycling, etc, which push rates even lower, but the main thing to me is that after 2 decades of disinflation and declining rates, people think that disinflation and declining rates are here to stay no matter what (even though all the factors that led to disinflation have now gone into reverse).
Rich
PS – Sorry that wasn’t much of an “essay.” 🙂 I do hope to write more about the topic in the future though.