Historic Low: 30-Yr. Mortgage Rates Drop Below 4%
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Thursday, October 06, 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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10 Comments:
http://cr4re.com/charts/charts.html?Existing-Home#category=Existing-Home&chart=MBASep282011.jpg
the mortgage purchase index continues to drop and is very near to 25 year lows.
far from stimulating demand, it look like this mortgage rate is a function of very low demand and problems with qualifying for loans.
freddy and fannie are 70% of the market and they keep driving prices lower, but we are in a highly inelastic part of the demand curve. this drop in price is not stimulating demand.
it's like a great drink special in the VIP room.
if most cannot get in, it does little for overall drink demand in the club. (though it's great if you are in the champagne room)
The curious reality is that Japan has had extremely low interest rates for 20 years, and real estate markets have fallen by 80 percent in the period, and are still falling. No property bubble there!
This is the lesson of national real estate busts--unless the central bank engages in an explicit policy of targeting nominal GDP growth (through a program of aggressive sustained quantitative easing), large-scale busts can become self-sustaining downdrafts, as seen in Japan.
Incredibly, advocates of "tight money" are really proposing policies that could decrease your equities and real estate portfolios by 75 to 80 percent, as has happened in japan. Over 20 years.
Waiting for the market to naturally correct after a bust---while braying about tight money--means consigning a lifetime or two to losses and then more losses.
Good luck everyone.
Benji writes:
"The curious reality is that Japan has had extremely low interest rates for 20 years, and real estate markets have fallen by 80 percent in the period, and are still falling. No property bubble there!"
No. Japan had the greatest property bubble ever on Earth.
"At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time."
bunny-
the lesson from japan is that if you have a shrinking population, real estate tanks.
it's not monetary.
they had a huge bubble burst into declining population.
i've already shown you ad nauseum that there was ZERO link between japan's money supply growth and gdp growth from 1990-present.
if i thought it worthwhile, i'd send you the link again, but it's obvious you won't read it/can't understand it, but the math could not be more clear.
Amazing what government intervention in the market place can do. Clinton, Dubya, etc intervening in the housing section had such wonderful results that the current clowns have continued it.
borrow short, lend long.......bet the banks are think'n ouch!
'Mortgage rates drops below 4%'
Yet the AP reports: Census: Housing bust worst since Great Depression
also keep in mind:
this is government price fixing.
freddie and fannie are 70% of the market. they are owned and run by the federal government.
they are setting this price.
the fact that it is not driving activity is testament to just how bad the market is.
I guess this is not very good for Mark's optimist position. A negative real rate means that the economy is weak and in danger of collapsing. It also means that the prices are still set by political appointees rather than the markets.
"borrow short, lend long.......bet the banks are think'n ouch!"
actually, the banks are barely in the mortgage market at all anymore.
70% is from the federal government.
what the banks are really thinking is "what the hell can we invest in to compensate for the fact that our bread and butter business has been taken away?"
in 2006, freddy and fannie were 40% of the market, a market that was 40% bigger than now in loan volume and had higher prices by 10-20%.
now they are 70%. consider what that means for the dollar volume of loans for banks.
the market was cut in half anyway in dollar terms.
then banks lost fully half their market share (they had 60, now 30)
that means they lost 75% of their business in dollar terms.
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