20.12.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Average 30-Year Mortgage Rate Hits 4.47% (Not Counting Fees); Affordability Check

Posted: 20 Dec 2013 12:04 PM PST

USA Today reports Average 30-year mortgage rate moves up to 4.47%
Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan increased to 4.47% from 4.42% last week. The average on the 15-year fixed loan rose to 3.51% from 3.43%.

A government report issued Wednesday showed that U.S. builders broke ground on homes in November at the fastest pace in more than five years, strong evidence that the housing recovery is accelerating despite higher mortgage rates.

Data from the National Association of Realtors released Thursday showed the number of people who bought existing homes last month declined for the third straight month as higher mortgage rates made home-buying more expensive.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country on Monday through Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for a 30-year mortgage was unchanged at 0.7 point. The fee for a 15-year loan declined to 0.6 point from 0.7 point.
Bankrate 30-Year Fixed Mortgages



Chart courtesy of bankrate.

10-Year Treasury Yield



Mortgage rates tend to follow the yield on 10-year treasuries. At 2.984% the 10-year treasury yield is as high as any time since mid-2011. Since mid-2012 the 10-year treasury yield is up from 1.394% in mid-2012, a rise of 159 basis points (1.59 percentage points).

Affordability Check

In December 2012, the 30-year fixed rate mortgage was 3.4% Today it is 4.52%, a rise of 1.12 percentage points.

Housing analysts point out that rates are low on a historical perspective, and they are correct. Nonetheless, a one percentage point rise in rates affects affordability by 10-11%.

Recall that a record number of Millennials, adults aged 18 to 32, put off household formation and stay at home to live with parents. See Kids Living in Basements a Drag on U.S. Services Spending

Each uptick in mortgage rates, even near "historic low rates", discourages household formation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

All-Cash Home Sales Hit Record 42% of Sales

Posted: 20 Dec 2013 11:18 AM PST

Even though household formation by millennials is at a record low percentage, home sales are at modest levels thanks to investor all-cash buying.

Market-Watch notes All-Cash Home Sales Reach New High.
More Americans are buying homes in all-cash deals, according to a new report. But real-estate experts say this increase may not be a good sign for the health of the housing market, which may also be impacted by the Federal Reserve's decision to pull back on its bond-buying program.

All-cash purchases accounted for 42% of all sales of residential property in November 2013, up from 39% during the previous month, according to data from real-estate data firm RealtyTrac released Friday. "This is still a very cash- and investor-driven market," says Daren Blomquist, vice president at RealtyTrac.

The cities [states?] with the biggest month-over-month jumps in the number of all-cash sales, according to RealtyTrac, included Florida (63%), Georgia and Nevada (both 51%), South Carolina (50%) and Michigan (49%). This helped boost overall sales of U.S. residential properties, which sold at an annualized pace of 5.1 million in November 2013, a 1% increase from the previous month and a rise of 10% from a year ago.

The decision by the Federal Reserve Wednesday to reduce its bond-buying program to $75 billion per month starting in January, from $85 billion per month currently, may also encourage more cash-purchases — at least for those who can afford it, Blomquist says. "They're going to do everything they can to keep interest rates low, which may be tough to do," he says. To reduce cash buyers, he says there will need to be low interest rates and a cooling off in home price appreciation. "Otherwise, you'll see the market skew even further toward cash buyers," Blomquist says.

When interest rates went up slightly in June, there was a notable increase in cash sales, Daren Blomquist says. "Some markets are more interest-rate sensitive than others based on affordability," he says. "Just a slight increase makes homes a lot less affordable." In fact, another report by Goldman Sachs in August was even more strongly in the cash-is-king camp, estimating that cash sales now account for 57% of all residential home sales versus 19% in 2005.
A record number of Millennials, adults aged 18 to 32, put off household formation and stay at home to live with parents.

See Haircut Deficit: Kids Living in Basements a Drag on U.S. Services Spending; Since Recession Ended, Durable Goods +34%, Services +6.3%; What's Next?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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