I kinda disagree with the premise of Floyd Norris’ column yesterday (although how can I not love the chart?).
click for larger chart
We already made the case back in August that real estate was cooling.
What Abrams does not show is the long term history of mortgage rates; Rates at half century lows are why the Bom has lasted so long lasting; Indeed, even after 11 rate hikes, mortgages are only at 6.1% — lower than anytime prior to this boom going back to 1971 . (I found data on the Freddie Mac site).
In 1971, the 30-Year Fixed-Rate Mortgage was about 7.5%. Mortgages then climbed into double digits by the end of 1978, peaking at 16.32% in April of 1980. After peaking, they gradually starting coming down, and have been in single digits ever since 1990. (If any one has historical data going back further than 1971, or even better, a spreadsheet and chart, please let me know).
Here’s the NYT excerpt:
"Housing has been in a prolonged boom. The total number of housing starts is not unprecedented; it is in fact lower than the peak reached in late 1972, when a boom was nearing an end that would be worsened by a totally unexpected rise in oil prices. But what is unprecedented is the mild nature of booms and busts in the housing market.
It used to be common to see start volume rise and fall by huge percentages. In the spring of 1975, with a deep recession ending, the number of houses started over the previous 12 months was off 37 percent from the figure of a year earlier. In the fall of 1983, as the economy emerged from recession, housing starts were 66 percent above where they had been a year earlier. But in the last decade, the annual gains or losses in housing starts have never exceeded 14 percent.
What is different now? One factor is the way houses are financed. It used to be that banks and savings and loan associations made mortgage loans, and they would be cut off when the Fed pushed up interest rates above the levels the banks could pay on savings. But those rules are long gone, and the Fed cannot turn the housing market on or off.
Indeed, as the current boom shows, the Fed has some trouble even slowing a boom. Long-term interest rates have not risen with the short-term rates the Fed does control, and the financial system has responded with creative mortgages that let homebuyers hold down monthly payments even as the purchase price rises."
If the Fed really wants to cool housing, three 50 point basis hikes in a row will do it. Of course, that will cool everything else off pretty quickly, too.
Unending Housing Boom Tosses Aside Rate Increases and the Old Rules
By FLOYD NORRIS
NYT, October 22, 2005
Category: Real Estate
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.