Click to enlarge:
Source: Bianco Research
Source: Jody Shenn via Bloomberg Chart of the Day
While many are all excited about RRE, I wanted to post these charts as a reminder as to the extraordinary accommodation in place to create what is at best a mediocre stabilization in the Housing market.
ZIRP + 14 month Foreclosure Abatement has produced only a modest stabilization of prices, a small tick off of the bottom in volume. Home builders are doing better, with a substantial improvement driven by multi-family units. Note that much of this is being driven by the red hot rental market — not a housing recovery.
Jody Shenn of Bloomberg pointed out yesterday that 80% of all mortgages are at least 0.5 percentage point higher (or more) than market rates, offering a huge incentive to refinance. Yet prepayments for fixed-rate, government-backed mortgage bonds are less than half their 2003 peak (i.e.,, normal pre-boom years). The second chart above shows average new loan rates versus an index of refinancing applications — loans are still depressed despite reaching a three-year high.
In other words, despite the record low rates afforded by a massive FOMC accomodation, refis and sales remain relatively meager.
Housing bulls will tell you homes are at their cheapest level according to the worthless NAR Home Affordability Index. But there is an enormous difference between homes that are affordable and buyers that can afford them. A buyer needs a 20% down payment, a good credit score, steady income, and sufficient ability to qualify for a mortgage under tight credit conditions. Such buyers are much rarer today than 7 years ago when anyone who could fog a mirror could get financing.
And this is before the foreclosure machinery creaks back to life.
Stability is better than a freefall, but it is not the same as a robust recovery.
See also
Record Mortgage Rates Spur Meager Refi Gains: Chart of the Day (Bloomberg Terminal)
Dave Wilson
Category: Credit, 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.
The right side of the first chart (Mortgage Rates) from 2008 forward looks like a Death Spiral!
“Where she stops, nobody knows?”
I guess ZERO is the theoretical bottom? !!!
I am entering week 7 on my refi with BAC, and from my experience I can tell you the process is broken. 800+ FICO score, 8% debt to income ratio, and 7X the mortgage amount in financial assets don’t seem to move the needle in getting the deal done.. Very frustrating. “Too big to fail” should be rephrased to “too big to manage”.
What kek said.
A number of folks predicted the big commercial banks would only use taxpayer money to save themselves and would not increase loan volume to spread the funds around. And so it was, we got the worst of both worlds: zombie banks and reduced money velocity.
All those who argued for the “Swedish Solution” to our credit/banking crisis were spot on.
kek, I too am on seven weeks but with JPM. Same quals for me and they want me to buy down the rate to the current level…………..thinking about walking and starting over after 60 days.
The private sector will figure this out. I predict that the solution will be in the form of a “son of Countrywide” that will be able to pump out loans for securitization to yield hungry investors. They will cherry pick the market while there is little competition. Better underwriting will result in better loans for securitization.
Eventually, everyone will get back into the biz and it will crash again. That is the nature of the beast.
Iit isn’t what you do but who you do it with. My refi went swimmingly. No TBTF bank, just a damn good mortgage broker. After he handled my initial mortgage seemlessly I referred him to others. About 18 months later he contacted me about the refi. He made money and I saved money. What mid-level manager in a TBTF bank would be so proactive?
BusSchDean,
good point, I’m not sure why people would deal with a ‘Salaried’-employee at a “TBTF”-Bank..
really, ‘What is their ‘motivation’?'–they’re, probably, p****ed that you’re interrupting their ‘Farmville’-”Harvest”..
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Anna W,
nice Post~
This “death spiral” in interest rates is good for gold. i still think it is the currency of the near future. Therefore i already position myself in the yellow metal.
http://www.cfd-handel.nl/index.php/artikelen/8-artikelen/10-met-cfds-in-goud-handelen
http://www.youtube.com/watch?v=ONPkiK5UgNo&feature=related
Just memories for ya now.
It is not just TBTF banks….I also have an 800 score, and was looking to borrow 1/3 of the value of my house.
My local savings bank here in NC claimed that Fannie and Freddie guidelines prevented them from giving me a refi. I called BS, but I have no way to verify.
My local weekly paper today devoted most of the front page to announcing that the housing market is now almost fully recovered, and you should buy this instant before mortgage rates and housing prices rocket higher.
Besides being a contrary indicator, it looks like the NAR outright bought the front page.
Two friends are selling beautiful homes that have been on the market for close to 90 days without an offer!!!
One purchased in 1999 for 865K and has been asking 1.25K now down to 1.49K and needs to get closer to the 99 price as that is were the closest comp has sold. The other friend purchased in 2006 for 835K and put another 50K plus into the house, a wonderful setting by the ocean in Half Moon Bay. They recently lowered there price to 799K but in reality it probably will not get an offer over 550 to 600K at best. Both want to move on to other homes but have been unwilling to accept market reality instead they listen to RE bulls talk up the RE market.
I work at a TBTF bank as a low level mortgage processor. The volume we have right now is insane. Our targets are to have 30-40 loans in process per person, right now I have 111. It’s impossible to provide good service in the current environment. The reason the mortgage broker situation went better is because he is probably working with 10 people at a time or has the staff to help out. As for motivation right now I have tons of motivation but not enough time. One last thing if you lock your rate that means both ways if you want a lower rate when rates go down during the process don’t lock it ask to float.
We hear the tired refrain, “the banks arent’ lending!” Probably true with commercial stuff but,,,,
Around here, there is so much mortgage money sloshing around it is hard to believe. You can get a mortgage with scores in the 600′s and 20% down is nowhere necessary. FHA money is all over with 3.5% down and low credit scores. 5% down conventionals are everywhere, and a couple of local lenders offer conventional 3% down with no PMI, albeit slightly higher rates. I have re-fied three times in the past couple of years with US Bank & it was a breeze every time. Not sure about other parts of the country, seems like horror stories. It’s painless in general, unless you have bankruptcy or foreclosure/short sale history.
Not sure where you got the 20% down requirement. I’m selling/buying new home in Denver area & only need 10% down for $600K+ new home (though my credit is 750+). Rates at 3.65%, potentially lower when I lock. And my home (bought during the depths in 12/08) is now worth 10-15% higher than what I paid.
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BR: Every bank in America. If you are putting less down, then someone (the builder?) is covering that