A benchmark for the US mortgage market has gone AWOL! The difference between the 10-year LIBOR and 10-year US Treasury yields is NEGATIVE. The enormous issuance of debt and persistent agenda of using it to revive the dead patient is about to bite back. The 10-year yield will go higher.
As I've forecasted long ago, I do not expect mortgage rates to follow. Not for long. The disinflation is transforming into the ugly deflation threat now and that will kill any inflationary attempt. That means the real estate market gets hit at both ends of the affordability curve. And that is a correct response due to supply being held back from sale by banks as well as owners. The shadow inventory is estimated at THREE TIMES the listed number for the past two years now.
Spring will be but a blip, and quickly a bust! So all you fair weather fans who are just itching to get into your own home (aka INVESTMENT), start talking to your strategic default adviser before you sign at closing.
In Hoboken, fair value will now be deemed at a comp equivalent to mid-2003, down from early 2004 just a few months ago. The so-called recovery in prices has been a talking point aimed at marketing traffic. I wonder how many real estate professionals are being taken to court these days? Well, watch for that phenomenon soon. Far too many with advice rather than information and clarity on a property's financial history.
This bounce will try for one last gasp as spring approaches... and fail miserably. Peak to trough prices will start approaching the magic 40% mark for the metro NYC area. Is it any wonder that we have one-family homes racing to market right now?
Price it right! Or look for a lifesaver later.
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Plain and simple, prices were at artificial levels during the laxed credit period of unlimited leverage for unqualified homeowners. So I agree that the prices of the past three years or so should simply be wiped off the record!
Those who have the equity built up from that market situation are eager to get out. That's in spite of the difficult decision of leaving a home they love. They are the smart ones that are ready to sell to any buyer after this correction. It's minor in the longer term since prices will keep going lower. Buyers will be enticed by current mortgage rates and needlessly (prematurely) rush in.
Bad weather did'nt explain the weak homes sales report for February. There was unusually bad weather across much of the country in February but it typically takes 1-2 months between contract signing and closing. So February sales reflect contracts signed in December and January. It is also worth noting that sales actually rose in February in the Northeast and the Midwest. They fell in the South and West where weather was less likely to be a factor.
The markets liked the news that personal consumption remained resilient last month despite lingering high unemployment and muted growth in incomes. Unfortunately, the relative share of spending on durable goods continues to fall. Reluctance to acquire big ticket items like cars, furniture, and appliances indicates that the consumer doesn't have the money. Where does that put a home on their list of things?
Those who have followed our train of thought on the RE market are fully aware that we expect mortgage rates to remain low while property prices stagnate. This is the deflationary and/or disinflationary outcome we view.
Now, PIMCO comes out with a similar opinion on mortgage rates, matching our expectations. This is not to be confused with the stability in RE prices that is being professed by RE professionals as a RESULT of low mortgage rates. Quite the contrary!
"Investor demand for mortgage-backed securities will keep U.S. home-loan rates down after the Federal Reserve ended its purchases of the debt, said Pacific Investment Management Co., manager of the world’s biggest bond fund.
The Fed’s unprecedented program to buy $1.25 trillion of the securities that guide home-loan costs stopped U.S. housing prices from falling, Scott Simon, who is in charge of investing in the notes at Pimco, wrote on the company’s Web site. Pimco is among the fund companies that sold mortgage bonds to the Fed, and many money managers began 2010 “underweight” these assets, the report said."
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