Posted on 11/28/2016 10:41:10 AM PST by Lorianne
While rising treasury yields may be music to the ears of savers who have been crushed by low interest rates over the past 7 years, they're a bit of downer for the overwhelming majority of Americans that have been funding their lavish lifestyles with cheap debt. Yes, sadly the days of upgrading to the $65,000 luxury car despite a $40,000 annual salary, because you can "afford it" so long as you can cover the low monthly payments courtesy of 7-year terms and low interest rates, may finally be coming to an end.
But auto OEM's aren't the only ones about to get crushed by the "normalization" of interest rate policies in the U.S. As the Wall Street Journal points out, according to the Mortgage Bankers Association, mortgage refinancings are set to drop 46% in 2017. And with many American's funding their daily expenses with "cash-out" mortgage refi's, pretty much everyone selling goods to consumers, which happens to represent about two-thirds of the economy, has reason for concern.
The fast rise in rates has spurred homeowners to pull back from refinancing their mortgages. Applications dropped 3% in the week ended Nov. 18 from the prior one, the seventh consecutive weekly decline, and the second since Election Day, according to data released Wednesday by the Mortgage Bankers Association.
The MBA estimates refinances will fall 46% next year, to $484 billion, which will hurt Americans’ ability to free up cash by reducing the cost of their monthly mortgages. The fall in refinances also will hit an important area of consumer-loan growth for banks. To slow the possible damage, banks already are pitching riskier loans that come with adjustable interest rates or allow borrowers to pull more equity out of their homes.
“The increase in rate has shocked consumers…I didn’t expect it either,” said Dave Norris, chief revenue officer at LoanDepot, the 10th largest mortgage lender in the U.S. by loan volume.
This month’s rate increase has eliminated a large share of borrowers for whom refinancing would make financial sense. Before the election, 70% of all borrowers with a 30-year fixed-rate conforming mortgage stood to incur at least a half a percentage point in savings by refinancing. Now only 35% of borrowers are eligible for such savings, said Walter Schmidt, who tracks mortgage-backed securities at FTN Financial.
[charts and graphs at source]
Agreed, big deal about absolutely nothing.
Trump elected?
Time to raise interest rates then and try to crash everything.
Make hay while the sun still shines. I know a few people who actually paid ahead six months on their mortgage note. I questioned the logic, why not make a lump sum payment to principal? They were buying leeway if things go south in a bad way, that was the logic behind it. Don’t know if I agree, but there you go.
There is a lot to be said for paying ahead if possible. In my case, it just means more junk silver.
If the apocalypse is here because of 4%, I’d hate to think what it was when I bought my first home in ‘83. Thanks to that idiot Carter interest had been at 25% and I got my first home at 14%. And I was glad to get it.
It is getting bubbly again here in NJ
Home values going up for no reason
Taxes are going up as well just not as fast as they were between 2000 and 2009
The same people reside in a county that gives a discount on property tax paid in advance, up to five years, locks the rate in. They’ve done that too. Fear of predatory taxation coming, if governments start losing their income. I have to wonder why they don’t just pay off the note, if they’ve got that much liquid cash sitting in a bank somewhere drawing a pittance.
I’ve been to NJ many times on business. Some parts were depressing and unpleasant, but there are (or were, haven’t been there since the mid-late 90’s) some absolutely beautiful towns there. It’s a pity that the whole state appears to be headed downhill, almost a state version of Venezuela, not quite as bad as Illinois but close.
Too much. I got an offer that said if your rate is above 1.5.........
Aw c'mon, it's not like we've ever had mortgage rates above 8%, right? lol
20 years ago, my VA mortgage was 8%. Last year, I refinanced at 4%. The only ones with fire in the hair are real estate sales people.
It's like those who are giddy when gas prices drop a nickel a gallon.
You just dated yourself, FRiend. lol
Probably were going to rise no matter who was elected.
They can’t keep the artificially low forever.
But yea, timing is suspect.
The only thing holding the real estate market together is low interest rates. If rates go high enough, things will start crashing again. Prices will have to come down so people can qualify for loans. Or, the government will screw it up again and force lenders to make loans to those who do not qualify.
$300,000 loan, 4%, 30 years = $1432 principal and interest
5% = $1610
6% = $1799
7% = $1996
8% = $2201
It’s not make or break in the vast majority of the country, where a decent three bedroom, 2 bath house can be had for less than $200,000.
Yikes, that 34 years of sending payments to the bank
And the bank lets you think it's doing you a favor!
Agree sort of.
Things were not crashing when mortage interest rates were 12%.
People just thought it was normal.
Hey, that sounds like my house! :-D
Yeah, I’d love to be in a position where I owe nothing on my home and am only responsible for taxes. For my whole place, the annual taxes are roughly the equivalent of one month’s car payment. I’d like that it stays that way.
But with all the uncertainty going on lately, as the ponzi scheme reaches its end, you can never be fully protected. Ultimately, you do the best you can and put it in the Lord’s hands. Life is a mist anyway...
I understand each of your comments, but what you don’t understand is that here on the Left Coast (California), people have become accustomed with living “paycheck to paycheck”. They have a ridiculously low mortgage that they can barely afford to pay, but with an excessive number of credit cards, their entire lifestyle is based upon borrowed money and high debt. As far as most of these asshats are concerened, they just need to make good on their minimum monthly amount for each credit card, loan, lease, mortgage, etc. Life is good as far as they are concerned.
To wit, a majority of California residents lease their vehicles and homes (aka: don’t own and do not accrue any interest or value from the payments they make), and live paycheck to paycheck.
If and when interest rates return to the real world (10%?), the entire state of California will be bankrupt, homeless and hustling blowjobs for beer money.
The upside will be that folks who bother to save will also reap the benefits.
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