First, the good news: the latest pending home sales figures for were much, much higher than anyone expected, up a practically healthy looking 3.2% from last year.
Now the bad news: pending home sales are not done deals. The buyers often still have to secure a mortgage. And the mortgage market kind of blew up last week.
Even if the current sales go through, a 500 basis point increase in the interest rate is going to put a meaningful crimp in buyer demand. But it's probable that not all of the sales will go through: some buyers won't have locked in a rate, and if the Field Check Blog is correct, others may not be able to get their loan processed in time to close. Joe Weisenthal has more.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Is 500 correct?
50 is about right - from 5% to 5.5% for good credit 80/20 refis under the jumbo limit, a little bit less for first time purchases, and potentially much more for bad credit or jumbos.
"Now the bad news: pending home sales are not done deals. The buyers often still have to secure a mortgage. And the mortgage market kind of blew up last week."
You are correct. The numbers released by the Realtors are rubbish. Closed sales are the data we really need to evaluate where we are, and I have a feeling that many, maybe even a majority, of these pending sales WILL NOT go through. According to several friends of mine in the industry, a lot of the April pending sales were not able to lock in rates prior to the spike. They're saying that, on average, almost 50% of the contracts in their markets (primarily West Coast) are falling through. To be fair, some of these are due to contingencies on the contracts not getting done, but the result is the same.
And with more foreclosures putting more houses on the market as the year goes on, the situation will get worse.
[...]National Public Radio told listeners that the new home sales figure reported for April was up from the March level. While this was true, the April figure was only 1,000 higher than a March level that had just been revised down by 5,000. April new home sales were 4,000 below the sales level that had originally been reported for March....The media have obviously abandoned economic reporting and instead have adopted the role of cheerleader, touting whatever good news it can find and inventing good news when none can be found. This leaves the responsibility of reporting on the economy to others....
The construction sector is suffering from the enormous overbuilding during the bubble years. Measured in months of sales, the inventories of both new and existing homes are close to double their normal levels. This inventory will ensure that construction remains badly depressed at least through 2010, if not much longer.
http://www.guardian.co.uk/commentisfree/cifamerica/2009/jun/01/us-economy-media
I am definitely one of those people who believes that Chauncey is screwing this up by the numbers, but...
shouldn't we at least see a *small* initial rebound from all of this cash being pumped?
I appreciate the various "expectations" arguments, and I'm sensitive to the fact that such aggressive pumping might cause interest rates to rise before any significant income-effect benefits can take hold.
And, voila, perhaps I've answered my own question. Only a suit as empty as Obama could find a way to print billions and billions and get *virtually nothing* out of it.
Heaven knows his propaganda arm (aka "the press") is doing their part. Every time a butterfly farts they declare it perfume. Maybe he'll get some lift out of his "keg'o'cash" strategy.
I sure hope so. It would be nice to buy a few things before the inflation monster gets too angry...
And, voila, perhaps I've answered my own question. Only a suit as empty as Obama could find a way to print billions and billions and get *virtually nothing* out of it.
Obama doesn't run the printing presses. There is a reason Bernanke is called "Helicopter" or "B-52" Ben. It started back under Bush II, don't forget.
shouldn't we at least see a *small* initial rebound from all of this cash being pumped?
You really can't tell where all the cash is going? Oy!!
People are trying to get into houses for the same reason we have a 500 basis point increase in mortgages - inflation is coming.
As Yancey pointed out, a 500 basis point increase would be an extra 5%.
Yeah, that's true. But even 50 basis points is a pretty big shift over such a small time period. There were stories circulating last week about every American being on the hook for a half million in debt once you include obligations like Social Security and Medicare. The only way out for those kinds of numbers is inflation.
a 50 basis point increase would describe next week
a 500 basis point increase will describe the next few years
ugh -- 50 bpts is what happened last week
i will stop now
Real estate prices haven't softened at all in my area. There is no foreclosure wave in my area. So my investments tank, and I don't even get the benefit of a favorable housing market.
I'm afraid to buy anyway. I have a big pile o' cash and with the talk of a state budget crisis, that has me full of fear that no tax credit incentives can overcome. I need my cash to survive in my upcoming years in the homeless shelter.
What's the use of buying a house when you suspect we'll all soon be living in a van down by the river.
I'm sure 500 bp was a typo, 50 bp is about right. Keep in mind the large % of pending sales which are short...this will drag out the process and in many cases cause the sale to default.
The next shoe to drop is related to credit worty borrowers/home owners who lose their jobs; prolonging the recovery and resulting in lower home prices extending well into 2010.
Conforming rates are still low enough to drive demand. I suspect that you'll see 30 year conforming rates move around on either side of 5%. Increased lender activity will ultimately push mortgage rates down, somewhat independently of the long bond, because there is plenty of spread that the banks can give up while still allowing loans to be profitable.
The real issue will be to get to a point of plateauing unemployment. Jobs are needed to slow the rate of future defaults, and the fear has to die off for those with jobs to dive in with both feet. At some point, they'll start buying out of fear that it will be too late if they keep waiting.
The real problem is going to be in the jumbo market. The spread between conforming and jumbo rates has stayed stubbornly high, and the securities market is still too dry for there to be much lending capital for these. The McMansion crowd with declining incomes, excess leverage and an interest rate environment hostile to big ticket buyers and refinancing may find that they have 5,000 square foot white elephants that no one will buy without a steep discount. Homes that qualify for conforming loans will be the first to recover.
Since the cost of housing keeps falling that's great news. Low prices are good. Low prices mean higher living standards. After years of bad news about rising prices in houses the last couple of years have been a great welcome change. Finally the bad news about housing has ended.
You have seen the low in mortgage rates. If you didn't lock in before last week, you won't get a chance at rates that low again.
I suppose Bernanke could buy another trillion and a quarter of MBS, but I think even he has finally understood the essential limits of his power. The 10 year will be above 5% within 2 years and mortgage rates for 30 year to the best borrowers will be back above 7%, and the foreclosures will keep coming until unemployment peaks this cycle.
*evil cackle* 30 year fixed at 4.5! I'll be making more than that on insured CDs in a few years.
Now I just need to get my confidence up enough to blow the rest of my cash on remodeling before inflation sets in...
Nice job on MacNeil/Lehrer tonight (yeah, call me an old-fogey.)
I'm with Yancey. I locked a max conforming loan this week at 5.29% for 30 yrs. Now at 5.45 and rising. Weak dollar should have the 10 year over 4% by year end.
Yeah, nice job tonight. From another old Fogey.
I honestly view this as good news. There's alot of cynicism on here that people were trying to lock in the low loans; fine and dandy, but I don't think the overall market is that savvy.
Even if most fall through, I see this as a sign of potential sustained increase in overall demand. Which is good, in my book :)
Sorry, what was I thinking. All of that borrowing has absolutely nothing to do with the money supply...