Rates have risen steadily since early December, largely because good economic news and public statements from various Fed governors dampened speculation of a rate cut in early 2007. As a result, the 10-year Treasury's interest rate is back near 4.84%. This was at least a non-restrictive interest level in October. We'll have to see if that still holds going forward.
4 comments:
The decline in the housing market has not been tied to any of the usual triggers (economic troubles, high interest rates, etc.)
The decline is because people can't afford houses anymore.
The rate of the deterioration in the market may have slowed recently, but it will continue for some time until the market achieves some kind of balance between what people can reasonably afford and what prices are.
Plus, the problem of vast numbers of poorly-qualified buyers who are marginally holding on to their properties has not yet been fully flushed through the system. I believe a massive foreclosure problem will erupt this year and once that has happened and been absorbed, the market will stablize and begin to grow again.
That will take another year.
Hi Bonddad, NDD here leaving my first comment on your personal blog.
Imho, you've identified the single most crucial determinant of the present economy in this post. Not only 10 year rates, but interest rates for bonds in general, see http://stockcharts.com/charts/YieldCurve.html , started declining in about July of last year. Sure enough, consumer refinancing and mortgage activity followed as day does the night. This is why people like Roubini have had to revise their forecasts. The rates across the yield curve appear to have bottomed about a month ago, and have since increased. As night follows day, consumer borrowing will decline (especially if this trend continues).
Barring a sudden credit "accident", this economic cycle will die a death of slow strangulation. Since ordinary consumers are not sharing in any real increased wealth, only a decrease in consumer loan/mortgage interest rates allows them to "breathe' by refinancing. Shut the oxygen off long enough, the consumer dies, and the economy rolls over.
Anon --
You're completely correct about affordability. Either prices have to return to a level where more people can purchase homes, or wages have to increase to allow purchasing, or some combination of the two. It's going to take awhile for that to happen.
NDD --
Interest rates have been completely ignored during this expansion, for reasons I have yet to figure out. Drop interest rates to 0% after adjusting for inflation and people will borrow until the cows come home.
My husband, who is the sole wage earner in the family, basically has not had a wage increase for at least 6 years. In fact, with receiving a less than the cost-of living increase anually, he makes less now. If we had to buy our home at todays prices, we would never have been able to afford it.
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