Posted on 11/11/2022 7:52:30 AM PST by Kaiser8408a
The October Senior Loan Officer Opinion Survey on Bank Lending Practices came out yesterday and its a doozy.
The Net Percentage of Domestic Banks Reporting Stronger Demand for Mortgage Loans is sinking faster than Joe Biden’s oratory skills as The Fed tightens their monetary belts.
Jumbo mortgages, those that are greater than FHFA’s conforming loan limit, are tanking as well.
And today, the University of Michigan (BOOO!!) consumer survey for housing buying conditions fell to the lowest level in recorded history.
Given the latest inflation numbers (improving from disastrous, 8.2% YoY to really horrible, 7.70% YoY), and unemployment rate rising from 3.5% to 3.7%, we now see that Taylor Rule estimate for Fed Funds is now … 13.85%. The US is currently at 4.00%. THAT is a big gap!
Yes, The Fed will not be able to fill the gap between the Taylor Rule and the current Fed Funds Target Rate, without incredible damage being done.
Unfortunately, this is an ACTIVE FAILURE for The Fed which has left monetary stimulus too high for too long since late 2008.
On a personal note, I am glad the midterm elections are over. We saw John Fetterman arguing until he was blue in the face that he loved fracking and will continue to let Pennsylvania frack. Then PA governor-elect Josh Shapiro came out yesterday and said that PA will end all fracking. And we are to believe that Lt Gov Fetterman did not talk with PA Attorney General Shapiro about fracking? To quote Joe Biden, “C’mon man!”
(Excerpt) Read more at confoundedinterest.net ...
The fact that the Taylor Rule estimate can crash from 24% to 14% shows how absurd it would to set policy according to it.
This means blue state refugees will have a harder time affording mortgages in Red states.
You're either an Ohio State or Michigan State fan, but in either case I think I've just made a new friend...
I appreciate your optimism, but one reason many people flee this state, CA, for blue states is they are much more likely to be able to buy with cash there.
Good news.
So if you buy a house during an era of low prices but high mortgage rates, get a 30-year mortgage, then later when rates go down again you refinance, you'll have the best of both worlds: both a low mortgage balance and a low interest rate. But if you do the opposite (buy when prices are high but interest rates are low), you'll have a high mortgage balance that can't be refinanced away later like a high interest rate could have been.
Yes, lots of cash buyers coming from everywhere these days. I know a builder with a 2 year waiting list of people who have sites ready to go and cash to build, no mortgages needed.
Also, American homes owned free and clear are at an all-time high, 37%! Most of the rest are sitting on mortgages at rates much lower than today’s rates.
There will be no 2007-style big housing crash, we have a shortage of housing, a lot of free and clear homes, and a lot of low-interest mortgages.
I have had the job of answering parts of the quarterly loan officer survey. To clarify it only asks about people applying for a purchase mortgage through the retail channel of the bank. So yes that part of the market has tanked. The Rate/ Term refinance business is done for the foreseeable. For my employer, the amount of vanilla Fannie Mae/Freddie Mac loans originated by fell by half.
Just for the record, the Taylor Rule is:
r = p + 0.5y + 0.5(p 2) + 2, where, r is the federal funds rate of interest, p is the inflation rate, and y is the percent deviation of real GDP from the desired GDP
There is also the target investment return that is not being met either:
Some analysts (most notably Warren Buffett in Fortune Magazine November 22, 19991) argue that future long-term stock market returns can be estimated based on GDP growth and the dividend yield.
The math is simple, according to Warren Buffett1 and others, we can roughly forecast the long-term expected return from major large-capitalization stock market indexes as:
Expected real GDP Growth + Expected Inflation + Expected Dividend Yield
The advantage of this simple method is that long-term forecasts of the three variables are available.
Nothing is working. This administration is the root cause.
Where has all of the cash come from so quickly?
This is typical of this part of the cycle. Mortgage companies had a huge market for a while, hired a lot of people and worked themselves right into the obvious result. They did the right thing and are now doing the right thing by consolidating until the interest rate market turns again, which it will.
Looks just like the last 45 years to me, but maybe I’m wrong.
I partially agree with your post.
I think we are looking at a two tier market—the haves (who you correctly described) and the have-nots.
The have-nots are the younger first time homebuyers who have been priced out of the market.
So—the market will not have a classic crash—imho it will have a partial crash with the lower tier.
What the Democrats have done is made the rich richer and the poor poorer—despite their rhetoric claiming otherwise.
One guess...and the reason why inflation is raging.
The baby boomers have been paying off their mortgages for decades.
Those who have done so now have real equity which translates into cash purchases if they want to make a move.
There is a national shortage of homes, tough to see a housing market crash.
LOL! That was good one!
“Where has all of the cash come from so quickly?”
Boomers cashing in long-term investments as they retire is one place. I’ve sold about 1.5 million in free and clear real estate in the last two years as an example. One piece I owned for over 30 years. I’ve only bought $150k worth (now valued at $220k) of raw land (cash, or course) during that period. Now I’m watching the market for the next opportunity, which is coming. And I’ll be using cash when it does.
I basically agree with your take.
Also, a lot of Boomers are helping their kids buy homes by providing down payments and carrying mortgages for them.
I sold my principal residence last fall and carried the mortgage. I know the buyer well and was given 50% down. I kidded him that I hope he defaults.
10% of my assets are carried mortgages.
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