Wednesday, May 27, 2015

No big deal Ya'll.

I've grown to believe the Fed will hike rates no matter what the data looks like. But it does make me laugh that anyone believes that it will be no big deal. Even at a quarter of a percent! Everything fell of a cliff when rates hit 4.50% almost two years ago now, and they have never recovered since. That is where the pain line lies. Possibly even lower since housing prices have gone up so much. I mean, this whole thing has gone on too long - but as you can see from the handy chart above - this is what happens to mortgage apps when rates float around 4%.

Today I'd say half the rates are over 4%, the other half around 3.75ish. I don't know how many people are still underwater. I'd guess it is under 8 % of homeowners at this point. I don't have the heart to ask the one guy I know who is still there. He's gotta be getting close to being flat soon. He took out a construction loan against his house to build a business right at the top of the market. It takes a special bit of strength to have endured what that guy has. Most people couldn't take the pain.

At 4%, your only market for refi's are that guy. And as I have been saying for a while, the only housing market is the new home market which is not your average first time buyer market. It's easy to make things look awesome in that area with 26% YOY headlines when the new home market has always been much smaller. New homes are expensive! I don't know how you are going to wedge people out of existing homes with the rates people have locked in. Even I have a rental I never intended to keep. If it does manage to happen places sell pretty quickly. The house next to my rental went in one week. It turned over right when I was getting my new renter in.

All of a sudden in the last year almost every plot of land in my city was snapped up and they are building houses on them right this moment. It's really fascinating because land can take decades to turn over. Cities make it hard to build. For a while my city required you to install an "object of art" on every new development over 20 units. No foolies.

Anyway.... I know the Fed is freaked about hyper-inflation. And one day that will be a problem. There will be too much money chasing too few products and services. I doubt it will be before this administration is out. But you never know. I honestly think it will be a year or two into the next administration before things get too hot. This administration has punished every single segment of the economy who have done the right thing in favor of deadbeats. It's gonna take a while before people stop hoarding money because of this.

Honestly - you never thought you'd have an administration that acts like it hates the US as much as this one. It's like you are on a losing team every single day.

"With the average rate on the 30-year fixed mortgage now decidedly above four percent, borrowers are pulling back from refinances and struggling to make home purchases during a historically busy time of year for housing.

Total mortgage application volume fell 1.6 percent on a seasonally adjusted basis from one week earlier, for the week ending May 22, according to the Mortgage Bankers Association (MBA). While volume is still higher than a year ago, it has fallen 10 percent in the last four weeks."

Also read. Stanley Fischer: First rate hike will be no big deal.

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