Among the many misconceptions on affordability, financing seems to be another point of weakness among the advisers in the real estate profession.
While it's true that mortgage rates are based on the treasury yield curve, most commonly the 10-year, those treasury yields are not completely akin to the discount rate that the Fed controls. That's because mortgage rates are calculated using a spread over treasuries. That spread is still discernibly higher than average because of credit conditions the past couple years. So, although the base rate may not go lower (already close to zero), the spreads can tighten much further; possibly as much as a full percentage point from current levels as stabilization continues it's tough road onward.
That makes debates about present affordability meaningless. Affordability is a multi-prong decision process, whereas realtors are only focused on the Fed's discount rate. They have no understanding of the fixed income market and the yield curve to make more educated opinions to their clients. The NAR (their governing body) is already the laughing stock of interest rate trading professionals, so their integrity is not supported by such opinion regardless.
Beside the condition outlined above, the yield curve will continue to flatten - meaning that long rates will tend lower, toward their short-ended brethren. That means that the part of the yield curve that mortgage rates are most dependent on will show lower rates than we have already seen and mortgage rates (such as 30-year fixed) will go well below the celebrated 5% in the coming new year.
The deflation impacts we have continuously stressed here will see these mortgage rates go lower while property prices are also pressed lower due to supply-demand effects, at the same time.
So, when you hear that "there's no better time to buy a home, than right now," do the world a favor and teach your fellow realtor the above lesson. Their governing body cannot pass on these facts because it would mean another couple years of low or no business!
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Headlines said that initial claims dropped to 466,000, finally falling below 500,000. When we first crossed over 450,000 a few years ago that level was seen as a sign of recession. The headline number was a seasonally adjusted number. The actual number was 543,926. What is happening is that we are coming off high numbers in 2008 and a seasonal number that was much lower in the preceding years. The average for this current quarter will be over 500,000 per week on a non-seasonally adjusted basis. This is less than a 10% drop from last year for the same quarter. Job losses are continuing to mount, and we are on our way to an 11%-plus unemployment number by next summer.
Obama To Push Lenders To Reduce More Mortgage Payments -Report
The Obama administration will announce it will pressure mortgage companies to reduce payments for more troubled homeowners, the New York Times reported Saturday on its Web site for its Sunday edition.
"The banks are not doing a good enough job," Michael S. Barr, Treasury's assistant secretary for financial institutions, told the Times. "Some of the firms ought to be embarrassed, and they will be."
Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments, the Times reported.
Complete report: http://www.nytimes.com/2009/11/29/business/economy/29modify.html?hp
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