Mortgage Rates And The Current Back-Up In Yields

Interest rates at the long end have risen in recent weeks due to the enormous stimulus being thrown at the economy. However, given where we've come from, these 20-30 year rates are simply correcting rather than turning. The distinction is important.

With the Fed's benchmark rates close to zero, there is a lot of "wag" left in this longer end of the tail; so much so that 1% changes at the level where mortgage rates are influenced are going to become common place for a market divided between deflationary and inflationary threats. Furthermore, there is a defined path for the government's intention to lower mortgage rates, even further from their recent historic lows.

The US household balance sheet is estimated to have declined by $13 trillion. That's not a typo! The Fed and Treasury balance sheet has only offset about $3 trillion in comparison.

As the deleveraging of households continues, there is no spending as far as the eye can see. This is a combination of several realities: unemployment, lack of savings and fear itself. If someone's got a bridge to sell you before you miss the chance, ask them to show you the river first. As savings rates increase worldwide, the appetite for safe-haven securities like government bonds will only increase. That demand alone will keep the pressure for lower interest rates for the foreseeable future.

At this juncture, everyone should wish for inflation since it would be a sign of better things down the line but when all is said and done, a 4% 30-year fixed will seem expensive!

We are probably a couple years away from that privilege. Relating these issues to property affordability points us to even better levels than are being touted now.

I have spoken to many prospective buyers about why they would buy now rather than later and it all still seems to comes down to their emotional reasoning rather than necessity. It's time to hand them all a rear view mirror!

RE prices will continue their path downward over a protracted period of time. The only thing that will turn that trend around is a reality check on valuation. This is not a correction that everyone continues to preach. It's a readjustment that may not allow prices to rise again for a very long time.

Hoboken's prospects are beginning to look as dire as predicted. More so than any borough of NYC because we have all of the problems and none of the beneficiary cushions of a more stable and diversified tax base.

That's what the underlying securities are telling us about the prospects for RE. So I ask you, what's a home if you can't afford to maintain it for anything more than a status symbol. We Americans seem to be the only population attached to this emotion and we are about to be taught a nasty lesson.