Fed’s Rate Moves Fail to Spur Home Buying
By Barry Ritholtz - December 18th, 2008, 11:57AM
Refinancing seems to be the only game in town!
The Federal Reserve’s efforts to make homes more affordable have yet to bolster buying and instead are fueling a surge in refinancing, according to data compiled by the Mortgage Bankers Association.
As the CHART OF THE DAY shows, the association’s index of mortgage applications for home purchases has fallen this year. A similar refinancing gauge has more than doubled in the past month. Last week’s figures came out today.
Source:
Fed’s Rate Moves Fail to Spur Home Buying: Chart of the Day
David Wilson
Bloomberg, Dec. 17 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akA4WNP2pWio
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December 18th, 2008 at 12:18 pm
What people (like those on CNBC) don’t want to hear is how can people buy a home if they don’t have a job. They can’t. They won’t even mention the Bush era job creation numbers(which are awful). It doesn’t matter how low you cut rates if people don’t have jobs. Does anyone (besides Santelli) even realize that? Or have they all taken the stupid pill?
December 18th, 2008 at 12:20 pm
Well duh. Though of course they factor into the equation, rates are not a prime consideration in buying real estate. Most other primary concerns: price trends, job security, and now deflation are all stacked against the purchase decision.
Question of the year: why buy now?
December 18th, 2008 at 12:26 pm
I am pretty sure BurnMonkey want to re-surrect the money borrowing binge of the last few years through Re-Financing. He is now counting on credit-worthy owners to have extra cash to do some shopping, as well as reduce the pain of those irresponsible borrowers of the last 5 years.
December 18th, 2008 at 12:28 pm
All of the first time buyers got sucked up with the ninja, sub-prime fiasco. Everyone else has seen their house decrease in value, sucking up the equity that they would use to trade up. The previously mentioned employment and deflation issues make it almost impossible to jump start housing. The upcoming big three, part supplier implolsion will add some gasoline to the fire.
December 18th, 2008 at 12:29 pm
It will be interesting to see how many of these refinance applications actually close. There was an article on Dow Jones a couple of weeks ago where a loan officer at CenTek Capital in California said their applications, including refi’s, had increased five fold from November. He questioned how many would actually close. Unless they are agency conforming, I wouldn’t expect that banks will clamor to do a ton of refi’s.
December 18th, 2008 at 12:34 pm
Housing, like everything else, is now a price issue – even with money available to lend/borrow at a comparatively reasonable profit/cost, the consumer can’t afford the product.
The consumer is tapped out.
Game over.
December 18th, 2008 at 12:34 pm
@Calvin: Those hacks all live in a self-serving little cocoon. Do you think any of them even read any of the great blogs that are out there to get a sense for what’s really going on?
December 18th, 2008 at 12:41 pm
Off-topic: Now I’m not writing off Bailout Santa just yet (waiting on the autos to happen on 12/24) but this is one weak Santa “rally”. Let’s face it, there’s a “you first” mentality playing out right now and there’s very little confidence in the real fundamentals so The Greater Fool is sitting on their hands waiting for someone else to be the fool. We may get another rally before year-end but that’s just setting us up for what will be a mass scamper to the exits once the shorts are back in and reality sets in.
Of course, then the PPT will intervene and do it’s best to keep the illusion of a market that’s just in a “bottoming process”.
December 18th, 2008 at 12:42 pm
Someday, we might have an economy based on something other than selling houses to each other.
Just a thought.
December 18th, 2008 at 12:43 pm
Re-fi’s are good because the majority are going as fixed and not adjustable and will stem a great deal of the foreclosures. If the resets came in at 8% or so, then foreclosures would blow up like nitro! This gets the “sensible” people an opportunity to lock their rates in. This is the whole endgame to me that the Fed is pursuing. Along with the Tresury they can refinance the Government’s own debt long term for unbelievable low rates! Throw Subprime a courtesy bone. But the goal is to stop people that “would” stay in their homes if status quo remains, but if deflation keeps going, it’s jingle time and I don’t mean Christmas!
December 18th, 2008 at 12:45 pm
@Donna, You interested in some commodities? I’ve repacked a bunch together to lower the overall risk. With rates so low, you can leverage, buy them, and when inflation hits sell them again for huge profits! LOL
December 18th, 2008 at 12:46 pm
@ Mannwich
if they did read the blogs, and I really do believe they know whats going on, really, do you think they give a sh1t?
good or bad performance, they get their bucks and move on, where they can do it again, and again…
December 18th, 2008 at 12:46 pm
OT, sorry. This is a good summary of the Madoff/SEC duplicity that I only came across today.
http://online.wsj.com/article/SB122956182184616625.html?mod=mktw
December 18th, 2008 at 12:53 pm
@donna
Well, we made some progress selling houses to each other after selling fast food to each other for so long. Now, back to selling fast food to each other.
December 18th, 2008 at 12:54 pm
Another point people forget is that in home bubble areas (like CA and FL), close to 1/3 to 1/2 of all buyers of homes/condos were “investors” – people that had no intention of living in the home they were buying. Take that figure awayand home sales are going to drop no matter what the interest rate is.
The simply fact is that in real estate bubble areas, builders over-built based on these “investors” and NINJA loans. Until the REAL demand for homes catches up to the supply, prices will continue to fall and builders will build less. It is odd to me that such simply reasoning and facts are never discussed by our leaders. All one hears is how we must “stop foreclosures” and get people “buying homes again”.
December 18th, 2008 at 12:56 pm
@ Donna: No need to actually make things and work for a living – we can leave that to other countries…
Weakness in the commodity space today is likely to get leftback buying again today after a week of holding a pile of cash. Not all at once but will probably get busy re-loading with my favorite vehicles this afternoon.
December 18th, 2008 at 1:07 pm
here’s my jingle on ZIRP
“Helplessly Bernanke”
guidepostings.blogspot.com
December 18th, 2008 at 1:12 pm
What would have been wrong with letting the market price correct to a value substantially lower, and then have people buy at unbelievable steals, they would then have so much money left over to jump-start the economy again. Ben, problem solved. There comes a time when deflation has to be allowed to happen – trees don’t grow to the sky and neither do humans, otherwise we would have no sun and everyone would look like the tallest man and woman in the world – ugly!
December 18th, 2008 at 1:12 pm
@rob:
In the main, refi’s don’t prevent, but only forestall, foreclosures. Even workouts don’t help much(see experiences of FHA and Sheila Bair’s loan mods). There’s a saying in the business–”once a C customer, always a C customer”. Changing the terms of a loan does not change the individual’s inability to manage money.
December 18th, 2008 at 1:26 pm
Cold fact: 11.1 months new homes >10 months previously occupied homes..
And even though unemployment usually is a lagging indicator, I wonder when people look over this mess years from now if the unemployment numbers “lagged” much this time….
December 18th, 2008 at 1:29 pm
I’m not buying a home until there is blood running in the streets of Manhattan and Greenwich and people start selling boats to buy food. They are still at the fear and denial stage currently, although there are apparently mass layoffs coming in January at some very large corporate employers, specifically one that has a HQ in Fairfield, CT. That should get a few more mansions moving and move us along into the panic stage of the continuum.
OT – deflationists should be aware that CA and NY are now flat broke. In order to increase revenue they are going to tax the shit out of everything in sight, which means consumption taxes on food, transportation and everything we use on a daily basis. Highly retrogressive, of course, bad for the poor and for those on fixed income, and also ultimately inflationary. I wouldn’t touch munis with a barge pole, but looking at Fed actions I am now creeping into corporate bonds and I am no longer short junk bonds.
December 18th, 2008 at 1:35 pm
@leftback: Good strategy but by then you may want to consider leaving that region altogether.
December 18th, 2008 at 1:38 pm
Bank Mathematics
I can borrow at 0% and lend 30 years to risky homeowners, risking loss I cannot afford OR
I can borrow at 0% and buy Treasuries further out on the yield curve with no risk, increase my excess reserves, and get another 0.25% from the Fed.
Oh, gee….What shall I do?
December 18th, 2008 at 1:43 pm
Jeff: Can’t leave completely for career reasons. I have my eyes on a very quiet place where one should be able to grow food and live quietly and inconspicuously without guns. The folks in Manhattan are going to need to get the barbed wire out again if they don’t still have it up from the 1980s.. Greenwich should go back to being a small fishing and smuggling village like it was in the 1800s, once the current crop of pirates is driven out of town.
December 18th, 2008 at 1:51 pm
@leftback: I hear you. I think my lucky stars my wife and I escaped that place (w/fully paid relo package by someone else, was a no-brainer) nearly four years ago. Me-thinks we got out near “the top” and aren’t going back any time soon (except to visit if things don’t devolve into chaos over the years).
Far too many people back there are in denial about just how ugly it’s going to get again back in the city. It’s going to be a bloodbath (literally and figuratively) 70′s/80′s style. Back to the Future in NYC.
Please don’t send the pirates my way. Aside from Tom Petters and a few other jackals, we are a civil, honest, humble (sometimes TOO civil, honest and humble it gets a tad boring, but I digress) tribe out here in the Hinterlands.
December 18th, 2008 at 1:51 pm
That’s “thank” my lucky stars. Man, need a proofreader or something!
December 18th, 2008 at 1:53 pm
Note to Ben Bernanke:
First allow price discovery (EVEN IF it means accepting some deflation).
THEN cut rates.
You may have noticed that the first item is inevitable. Don’t fight it it or you’ll lose your weapons and your credibility. Do these two things in the correct order and they will be effective.
December 18th, 2008 at 1:55 pm
Someone might have to trot out Kurt Russell in reprisal of Snake Plissken on “Escape from NY” or “Bronx is Burning” Part Deux film after all is said and done.
December 18th, 2008 at 1:56 pm
These graphs illustrate the point that the naysayers have been suggesting. The reason the real estate market peaked, just like any other market, is that there were no buyers left. So, whether rates are 8% or 4%, it won’t matter. This whole deal is pretty nice for solvent buyers who can refinance, but the action of RAMMING rates lower, artificially, will NOT have the intended affect.
The optimist might say: “Well good. At least we can get a bunch refinancing to lower peoples monthly cost so that they can go buy things.” Glass Half Full.
The pessimist would just as easily suggest: “Well good. Those people will now cut their month expenses so that they can pay down other debts.”
The point is that sentiment and herd mentality rule. People are simply in a hunkered down mode and will not exit that mode until we reach an unsustainable emotional extreme. I don’t think we’re there. Even after we made decisive new lows in November, these talking heads on CNBC were talking about how we held the lows in October and November. WTF? Talk about trying to see things in a positive light.
- AT
December 18th, 2008 at 1:59 pm
lets talk about Treasuries! (homes are actually landed boats, you know, a hole in the ground you throw money in.)
if the 30 year is at 2.5ish, can the 10 year get to 1.5ish? surely i’m jumping the gun but am trying for some TBT, finally. i’m holding off on PST until i see how low the 10 year can get…
December 18th, 2008 at 2:02 pm
My house is worth 100-150k less than I paid for it apparently. I say bring it on, let’s have another 50% haircut.
If I move at all, it will be “up”. If this house is worth 200k less than I paid for it by then, the next move up will be 300-400k less than I would have had to pay for it in 2005. Works for me. In the meantime the lower property taxes are nice too.
December 18th, 2008 at 2:02 pm
@AT: Very convincing summation. I’m with you. I would add – the more the Fed and government does, the more it makes people nervous that something is not right out there and the more it seems to make matters worse. Until that tipping point is reached and confidence begins to turn, we are not anywhere near the beginning of a true recovery.
I would add that I have a sneaking suspicion that there are many out there than we think who have hung in the market (I’m one of them), but no longer really trust the market works for them anymore, and are waiting for a nice little Santa/Bailout/Obama rally so that they can finally cut bait and sell to recoup some of their losses. I might be wrong about this but we shall see……..
December 18th, 2008 at 2:06 pm
@Winston…all this zero percent financing…perhaps the terrorists have already won. It seems like Shar’iah law, where interest is nominally illegal (but a good Shar’iah lawyer can always get around it).
What magic happens to money such that the fed gets to borrow it for free, while the people responsible for paying back the fed’s borrowings can only get it @5%? Does the power of centralization/nationalization of the nation’s economy carry that much of a premium? Never mind. Answered my own question…
December 18th, 2008 at 2:11 pm
@ Karen: leftback is trying not to think about Treasuries at the moment. If the 10-yr goes to 1.5 I will have to commit ritual suicide in the middle of Times Square. Clearly that money is going to go somewhere else, at some point before the end of time. Some of this INSANITY has to be due to Fed buying and some of it is due to EoY window dressing of financial statements. I expect selling in the New Year.
@ AT: I don’t think the actions of the Fed are designed to help homeowners, it’s all about the banks. Mortgage rates have hardly budged for most borrowers. Once the USA defaults or debauches its currency, we will find that interest rates will be quite high in general.
@ Jeff: You are correct about the likelihood for NYC to go to hell in a handbasket, perhaps more so than any other place in America. It’s not going to be pretty…
December 18th, 2008 at 2:14 pm
@Mannwich: I know SO many people who continue to “hold for the long term”. It’s just ridiculous. They held despite the fact I was screaming from rooftops in May that this was the last chance to get out, with a lot of technical evidence…..
Unfortunately, these will probably be the folks puking out stocks next year in SP500 at 600…”cause things look really bad now.”
December 18th, 2008 at 2:18 pm
@AT: Precisely my point. I was VERY close to going all-in bearish/short last October ’07 (I know, easy to say now, but it’s true), but I didn’ trust my instinct and only moved probably 25% of my portfolio over, which is better than not moving any. There are others who haven’t sold anything and no longer trust the market, but don’t want to sell now and just might if we get another strong rally or two. Others will never sell no matter what and that’s their fault for not doing their homework. Those folks probably should never be in equities.
But I will say, I’m just chomping at the bit right now for one or two final big rallies so that I can sell some or all of my remaining longs and hunker down until all of the carnage is done. We are clearly not there yet.
December 18th, 2008 at 2:27 pm
Leftback, i’ll join you in Times Square over SRS. i’d be up 10-12 pts if i’d acted yesterday. for some reason, money not made upsets me more than money lost. : )
December 18th, 2008 at 2:28 pm
@karen: As I repeatedly vowed ad nauseum, I’ve been catching that falling knife for a while now. Finally turning, it seems…..
December 18th, 2008 at 2:33 pm
@ Mannwich: Trust me Jeff – anyone who lost 5-10% in this market is WAY ahead of the game. What’s gone is gone, those trades are over, just remember to skate to where the puck is going to be, not where it is right now. I think commodity longs with some shots at SRS/QID/RXD – always have some cash – will be the way to go here.
@ AT is right – dumb, desperate and deleveraging people will be puking stocks in January and February and that will be closer to the time for buying with both hands. I have been making money long in this rally but I am about done with doing anything that is broadly long the market. Commodities is another story entirely.
Andy may have been screaming from the rooftops in May 2008, but in May 2009 a lot of people will be jumping from the rooftops. This bear market will not be over until we have seen a LOT more pain and anguish. October was just the opener. People lost their play money, the next round will be far more serious. I think it is Mark who has a $100 target on GOOG, but that’s just an example of how many bloated valuations remain in this market.
Multiple contraction, baby… and Mad Money cancelled… :-)
December 18th, 2008 at 2:37 pm
Leftback, what do you see as the justification for commodities here? I don’t see demand returning any time soon and I wonder if dollar deval by itself is enough in the absence of demand.
December 18th, 2008 at 2:40 pm
“Others will never sell no matter what and that’s their fault for not doing their homework. Those folks probably should never be in equities”
I have less than $30,000 exposed to the equities markets, so I am VERY small potatoes compared to most of you guys. The last 14 months have been my “homework.” I haven’t sold, and won’t until I can do so without taking a loss. I also have not bought anything. I am watching, at times with horror and fascination, the great unwinding. Dividends and interest on corporate preferreds continue to trickle in to my otherwise bleeding portfolio.
I don’t trust the stock market any longer (what a fool I was!) but I also believe/hope that at some future point I will be able to exit my positions at break-even or better. When that point arrives, I will sell. I am nothing if not patient. AT, I will not be “puking anything out at S&P500 at 600.” It’s kind of like the old adage, “What doesn’t kill you, makes you stronger.” I feel stronger, wiser, and more humble than ever.
Fortunately I live comfortably within my means and have no debt. I will be fine.
It’s been a great learning experience. You only need one of these in a lifetime.
December 18th, 2008 at 2:40 pm
@lb: Thanks for the advice. Need to constantly remind myself of that and question everything, especially my own deeply-held biases.
December 18th, 2008 at 2:49 pm
Andy: SPX 890 holds or a trip down to 870?
Hoping for the latter so I can BUY BUY BUY.
December 18th, 2008 at 2:52 pm
babycondor,
I do hope you learn – particularly since you are persisting in doing the wrong thing. Been there. learned.
December 18th, 2008 at 2:52 pm
@rww: $ is broken and commodity usage by masses not optional (food, oil, gasoline).
See recent videos Rogers J., Faber M. and Schiff P.
What do you want to have if you are hungry? A video game or a pizza?
December 18th, 2008 at 2:55 pm
I do like pizza.
December 18th, 2008 at 3:02 pm
Olive oil tastes better than crude oil. Especially today…
I am not sitting in commodities but I am buying on dips. Like today.
Also own refiners which are in good shape in this range of oil prices.
December 18th, 2008 at 3:20 pm
karen @ 2:27
“SRS. i’d be up 10-12 pts if i’d acted yesterday.”
I too failed to pull the trigger and dd on SRS in the 52s yesterday, which today would have me at near break-even on the falling knives accumulated on the way down. Now sitting tight for the anticipated RE carnage in 2009
I take it that those here who are positive on SRS, do not feel that DP’s suggestion a thread or so back, that the FED could massively backstop the commercial RE mortgages, is a likely scenario?
December 18th, 2008 at 3:25 pm
REITs are fucked. Who wants to backstop The Donald and his ilk?
December 18th, 2008 at 3:29 pm
lb @ 3:02 pm
Which flavor dips are you liking today?
December 18th, 2008 at 3:29 pm
Santa not looking too confident these days. Don’t leave Santa, don’t leave!! It’s not 12/25 yet!
December 18th, 2008 at 3:40 pm
@ bat:
May have a pop at something in this group: AUY, PAAS, PBR, DIG, UCO, CCJ, UEC here.
Not going all in, just adding on from my cash position. Core positions GDX COP VLO.
December 18th, 2008 at 3:46 pm
anybody care to explain this little chart of horrors?
http://finance.yahoo.com/charts?s=%5ETNX#chart1:symbol=^tnx;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
How big is the float on the 10 year? How easily could Ben manipulate this?
WTF!?
December 18th, 2008 at 3:50 pm
vaughn
link doesn’t work
try making it a tinyurl (@ http://www.tinyurl.com)
December 18th, 2008 at 4:13 pm
What’s wrong with a rash of refinancings? They are either stemming foreclosures when people switch from AR’s to FR’s, and/or they are reducing payments thus freeing up income to be spent on goodies or groceries. New home sales are much more tied to the general health of the economy from trading up or job transfers. Interest rates are only going to have a marginal impact here.
December 18th, 2008 at 4:23 pm
how’s this?
http://tinyurl.com/44dvzp
Ben thought the Japanese had the right QE idea, he just thought that they didn’t respond fast/aggressively enough.
Goddamnit! Can’t we just TRY to have a non-bubble economy? Every mile we kick the can down the road the can just gets bigger and the road longer.
December 18th, 2008 at 6:09 pm
Okay, okay. Please no more rate cuts, I can’t take any more devaluation in my dollar. I’ll mend my ways and buy a f**king house. NOT!!
December 18th, 2008 at 6:45 pm
I wouldn’t rush to judgement on the bond market – as long as money supply is not contracted banks have a built-in risk-free gambit. Banks will continue to borrow from the Fed at the discount rate and buy as many treasuries as they can for as long as they can.
The new business model: borrow short, buy long.
December 18th, 2008 at 9:28 pm
lb,
w/ this: “. This bear market will not be over until we have seen a LOT more pain and anguish. October was just the opener. People lost their play money, the next round will be far more serious. I think it is Mark who has a $100 target on GOOG, but that’s just an example of how many bloated valuations remain in this market.
Multiple contraction, baby… ”
yes, double-digit GOOG quotes will be the new Black..and this: “that’s just an example of how many bloated valuations remain in this market.”–is spot on..
~~
babycondor Says: December 18th, 2008 at 2:40 pm
bc,
wally, above, tells you right. as well, remember there, really, is no such thing as ‘holding’–Everyday poses you a question: Do you Buy, or do you Sell. If you own it, and do not Sell, you are, in fact, Buying it again at that day’s price. LSS: there’s always an Opportunity. there’s always a Cost. and, there’s always an Opportunity Cost.
you should 2x-check that U$D 30 000 #, if that’s your current value, you should realize that ‘Mr. Market’ could take a 1/4 of that, in a hurry..while you’re at, take a peek around the ol’ domicile and see what you don’t have, that you couldn’t, readily, make–then feed that intel into your ‘Holding Losses’ Opportunity Cost model..
IOW, having the Patience of Job is no gaurantee you’ll get paid like you have one..
December 19th, 2008 at 3:32 am
Well, at least the mortgage brokers who helped to bring us this mess are making out like bandits.
Nothing like using taxpayer money to subsidize the miscreants AGAIN.