Chart of the Day: 15-Yr. Fixed Rates at Record Low
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, September 23, 2011
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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19 Comments:
and yet refi rates are 2/3 below what we saw in 2003.
this fed report holds some clues as to why:
http://www.calculatedriskblog.com/2011/09/fed-study-lack-of-home-equity-and.html
mortgage origination dropped 10% from 2009-2010 alone.
essentially, with so many homeowners underwater, refi is impossible.
in 2005, real homeowner debt and equity were at about parity at just under $10tn each.
since then, debt has gone up and now exceeds $10tn. equity has dropped by a staggering 60% and is now around $4tn
(source - goldman sachs)
that huge gap is exactly why cleaning up debt funded bubbles is so difficult.
rates are irrelevant if you owe more than you house is worth.
Well sounds like the market is doing what a market does, shows us the worth of a home loan...
From the Financial Post: U.S. housing starts fall: What the economists say
Note the 4th paragraph of this story: Starts declined 29% in the Northeast, 3% in the South, while rising 2.2% in the West and 2.6% in the Midwest...
Gee! I wonder where taxes and fees are highest?
"essentially, with so many homeowners underwater, refi is impossible."
Who benefits from this situation? Anybody? Yes, holders of Ginnie Mae Funds (Government National Mortgage Association).
Dan Newhall of Vanguard, home of the largest Ginnie Mae fund VFIIX, states in the WSJ:
" "You can hardly expect an increase in the supply of mortgages until the economy recovers," he says. "Diminishing supply would help prices of mortgages hold up." That's a strong contrast to the Treasury market, he adds, where there will presumably be "a lot of supply" in the coming years."
So, these could be an alternative to money market funds for quite a while.
Tight money after a real estate bust is the formula for a prolonged, Japan-style perma-recession deflation.
The Fed is following such a policy.
You think low rates mean easy money? Think again----rates have been near zero in Japan for 20 years, and the yen has appreciated mightily.
Greg Mankiw said the Dow would fall 20 percent after QE2 ended, and he is right.
Commodities Fall to Nine-Month Low
By Sharon Lindores - Sep 23, 2011 6:45 AM PT
Commodities fell to a nine-month low as silver, copper and nickel tumbled on deepening concern that policy makers are running out of tools to avert another global recession, hurting demand for metals, fuel and food. Gold fell below $1,700 an ounce in New York.
The Standard & Poor’s GSCI Index of 24 commodities fell as much as 2.2 percent, the most since Dec. 2, and was down 0.8 percent at 2:40 p.m. in London. The index is down 7.8 percent this week, the most since May 6. Silver slumped 10 percent, copper was down 2.7 percent and nickel dropped 3.1 percent.
Oh! Inflation! Oh!
The low rates are irrelevant because no one who needs such a loan can qualify for such loans. This is a useless stat for the majority of homeowners who either (1) have no equity or are upside down on their home, (2) have damaged credit to the economy and other credit restrictions or (3) a combination of (1) and (2). The banks are not lending and this is the real problem. The Fed needs to address the lending shortfalls by being the lender of last resort, by removing the incentives for banks not to lend and by stoking inflation in the range of 3 to 5%. Anything else will be not work.
Chicken Inflation Littles Destroy Economy, See Below:
Cleveland Fed Estimates of Inflation Expectations
News Release: September 16, 2011
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.37 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.
The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium. For more detail, see the links in the See Also box at right.
Estimates are updated once a month, on the release date of the CPI.The methodology used to generate the estimates was changed slightly starting June 15, 2011, and it is documented in this working paper.
Of the 5.03 million homes sold in August, 32% or 1.6 million, were sold to first-time home buyers. I assume that the low rates are relevant to those home buyers, most of whom are using mortgage financing at the low rates, and I assume therefore that they must have qualified for the mortgages.
Existing homeowners may not be able to re-fi at these rates, but millions of homebuyers are financing home purchases at the low rates.
mark-
that homes sales number is annualized.
there were not 5 million homes sold in august, there were 5 million homes sold in the 12 months to august.
existing home sales are still over 30% off the 2005 peak and sitting at about 1998 levels.
Sounds pretty much exactly like what Paul Krugman has been saying and exactly the opposite of what Peter Schiff and Ron Paul have been saying. And Schiff is highlighted on this website as if he's some sort of paragon of economic insight.
You need a J-O-B to buy a house, And not one that pays as poor as Wal Mart
which is about all that are left once good paying manufacturing jobs are exported.
People like Bernie believe assembling Barbie Dolls for Mattel, like the Chinese for $0.25 an hour, is a good job when it pays $20 an hour.
The $10 an hour job at Walmart would be a good job without government driving-up the cost of living.
And people like Peak Trader are so naive and/or dishonest on not knowing the corporate system lords own the US
government lock, stock and barrel.
Bernie, are you blaming this economic train wreck on Corporate America!
I guess, blaming Bush is getting old.
"...corporate system lords..."?!?!?
What the heck is one of those?
juandos: ""...corporate system lords..."?!?!?
What the heck is one of those?"
You know, those politician buying CEOs that make $60mn/yr, while ensuring all the rest of us make as close as possible to $10.hr.
The example given was Walmart.
They will all be sorry, though, they will soon see that at those low wages, we can't buy whatever their company makes, so they will go out of business.
:)
"You know, those politician buying CEOs that make $60mn/yr, while ensuring all the rest of us make as close as possible to $10.hr."...
O.K. Ron H, talking about folks like Soros, Immelt, or Buffet, right?
"O.K. Ron H, talking about folks like Soros, Immelt, or Buffet, right?"
Yeah, they sort of fit the description. I'm actually being sort of facetious, in response to Bernie's last comment.
The $10 an hour job at Walmart would be a good job without government driving-up the cost of living.
******************
That is right, you could even take yearly vacations to Europe, buy a new car every three years, buy health insurance if the government would mind it's own business...
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