Tag Archives: home mortgage rates

“This Isn’t A Drill” Mortgage Rates Hit Highest Level Since May 2014


A housing bust may be just around the corner. Rates have climbed to a level last seen in May of 2014.

https://imageproxy.themaven.net/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fmaven-user-photos%2Fmishtalk%2Feconomics%2FzmfATcSa4EegwR7v_znq6Q%2FvclF4JZbsEi5-4w6F9RDfw?w=993&q=75&h=620&auto=format&fit=crop

The chart does not quite show what MND headline says but the difference is a just a few basis points. I suspect rates inched lower just after the article came out.

 

For the past few weeks, rates made several successive runs up to the highest levels in more than 9 months. It was really only the spring of 2017 that stood in the way of rates being the highest since early 2014. After Friday marked another “highest in 9 months” day, it would only have taken a moderate movement to break into the “3+ year” territory. The move ended up being even bigger.

From a week and a half ago, most borrowers are now looking at another eighth of a percentage point higher in rate. In total, rates are up the better part of half a point since December 15th. This marks the only time rates have risen this much without having been at long term lows in the past year. For example, late 2010, mid-2013, mid-2015, and late 2016 all saw sharper increases in rates overall, but each of those moves happened only 1-3 months after a long term rate low.

Not a Drill

So far this month, MBS have stunningly dropped over 200 bps, which easily translates into a .5% or more increase in rates. I’ve been shouting “lock early” for quite a while, and this is precisely why, This isn’t a drill, or a momentary rate upturn. It’s likely the end of a decade+ long bull bond market. LOCK EARLY. -Ted Rood, Senior Originator

Housing Bust Coming

Drill or not, if rising rates stick, they are bound to have a negative impact on home buying.

In the short term, however, rate increases may fuel the opposite reaction people expect.

Why?

Those on the fence may decide it’s now or never and rush out to purchase something, anything. If that mentality sets in, there could be one final homebuilding push before the dam breaks. That’s not my call. Rather, that could easily be the outcome.

Completed Homes for Sale

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/_fdE0Pr4Z0S3TWc8qCyW3Q

Speculation by home builders sitting on finished homes in 2007 is quite amazing.

What about now?

Supply of Homes in Months at Current Sales Rate

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/bMlHtJTWr0yQwhkos7lauA

Note that spikes in home inventory coincide with recessions.

A 5.9 month supply of homes did not seem to be a problem in March of 2006. In retrospect, it was the start of an enormous problem.

In absolute terms, builders are nowhere close to the problem situation of 2007. Indeed, it appears that builders learned a lesson.

Nonetheless, pain is on the horizon if rates keep rising.

Price Cutting Coming Up?

If builders cut prices to get rid of inventory, everyone who bought in the past few years is likely to quickly go underwater.

Housing Starts Dive 18.7 Percent: Mortgage Rates Soar

The often volatile housing starts numbers took another dive this report, down 18.7% in November according to the Census Bureau New Residential Construction report for November 2016.

Housing starts 1959-Present

https://mishgea.files.wordpress.com/2016/12/housing-starts-2016-11a.png

Year-Over-Year Detail Since 1994

https://mishgea.files.wordpress.com/2016/12/housing-starts-2016-11c.png

New Residential Construction Details

  • Permits down 4.7% from October
  • Permits down 6.6% from year ago
  • Starts down 18.7% from October
  • Starts down 6.9% from year ago
  • Completions up 15.4% in October
  • Completions up 25% from year ago

Mortgage Rates Soar

https://mishgea.files.wordpress.com/2016/12/mortgage-rates-2016-12-16a.png

Mortgage rates have risen 104 basis points (1.04 percentage points) since July 8.

As I have pointed out, this is bound to affect the housing market sooner or later. Sooner means now.

Each quarter-point hike will affect mortgage rates correspondingly until the long end of the curve refuses to rise further. At that point, we will be in recession.

Still think three hikes are coming in 2017?

By Mike “Mish” Shedlock

Anecdotal Path To Lower Rates

https://martinhladyniuk.com/wp-content/uploads/2016/12/ericpeters.jpg?w=938

With the Dow Jones just a handful of gamma imbalance rips away from 20,000, the CIO of One River Asset Management, Eric Peters, shares some critical perspective on the market’s recent euphoric surge, going so far as to brand what is going on as America’s “Massive Policy Error”, the biggest in the past 50 years. 

His thoughts are presented below, framed in his typical “anecdotal” way.

Anecdote:

“America’s Massive Policy Error,” said the CIO. “That’s the title of the book someone will write in ten years about what’s happening today.” Never in economic history has a government implemented a fiscal stimulus of this size at full employment.

“The Trump team and economic elites believe that anemic corporate capital expenditure is the root cause of today’s lackluster growth.” It’s not that simple.

If credit to first-time homebuyers hadn’t been cut off post-2008, and state and local governments had spent as generously as they had after every other crisis, this recovery would have been like all others.

“People think that if only we cut taxes, kill Obamacare, and build some bridges, then American CEOs will start spending. That’s nonsense.” Ageing demographics, slowing population growth, and massive economy-wide debts have left CEOs unenthusiastic about expanding productive capacity.

“You make the most money in macro investing when there are policy errors and this will be the biggest one in 50yrs. These guys are going to crash the economy.” But not yet. First the anticipation of higher borrowing and rising growth expectations will widen interest rate differentials. Which will lift the dollar. But unlike recent episodes of dollar strength, this one will be accompanied by higher equities as investors ignore tightening financial conditions because they expect offsetting tax cuts and infrastructure spending.

Emboldened by higher equity prices, bond bears will push yields higher, lifting the dollar further, validating people’s belief in a strong economy in the kind of reflexive loop that Soros described in The Alchemy of Finance – the kind that drives extreme macro trends.

“This will be like the 1985 dollar super-spike. And the Fed will eventually be forced to follow the steepening yield curve, hiking rates aggressively, tightening the debt noose, killing the economy. Then rates will collapse, crushing the dollar.”

Source: Centinel 2012