May 23rd, 2019 9:30 AM by Richard Sardella MLO.100007700/NMLS 233568
The 10-year is back to 2.39%, mortgages essentially unchanged for the last three weeks.
Today’s rate “drop” -- down by 0.035% -- began first thing this morning, entirely in place by the release of the Fed’s meeting minutes. The minutes themselves caused a real-time increase in 10s, back up by 0.005%.
I am of course making fun here, but the bond market knows that the Fed is lost, and knows that the Fed knows that it is lost. The global economy has passed it by, not the Fed’s fault. New clarity and Fed action will come but could take months to years.
So markets look elsewhere: the threats of conflict, the unknown effects of the trade war, and the administration making all of it harder.
To housing. Several in the financial media think that housing is soft, and that softness is a precursor to a recession. And the Fannie-haters are on the loose again -- and the issues are linked.
Here is an alternate universe. The real one.
1. Home values have compounded at a 6% annual pace going back at least to 2012, which does crowd out some would-be buyers. But the crowd-out is traditional, “drive until you qualify,” not a bubble in process.
2. That search for an affordable home is complicated, sales crimped by three things. First and most powerful is the most potent US migration since the post-war move to the sunbelt, and maybe more powerful than that. We are evacuating the countryside in favor of urban and near-urban living. As of 2014, 61% of US counties had more people moving out than moving in. Every metropolitan area is receiving enormous population pressure, and none has much land to build on: little supply, few sales, and rising prices.
3. Second, the migrants are the most talented people in the countryside, the ones able to leave, often IT-savvy or getting there. All job growth has been in urban areas since 2008. The countryside is boring, repellant to the typical IT sort who wants to walk to substantial evening entertainment. IT pays well, which makes them tough to compete with in the housing market. When some authority says that housing is soft because it is not affordable, ask “For whom?”
4. Third, back in action is the reliable crew which hates government and therefore Fannie, and says that housing is “an inefficient and excessive use of resources.” They say that Fannie is a risk to taxpayers. One new accusation: Fannie is making too many loans at risky debt-to-income ratios. In reality (often a tough subject), mortgage underwriting has become more stringent in recent history. As one result, mortgage delinquency last month reached the lowest level on record (2000). We approve loans at high ratios because credit is tough, not easy: it is commonplace to exclude one spouse or partner because newly-self-employed, or some other quirk in income; or to exclude one because a 739 Fico instead of 740 would hurt the rate available to the other borrower alone. Debt-to-income in closed files is not always what it seems!
Housing patterns have changed, leading to the same kind of mistaken analysis which afflicts the Fed. Housing... watch the short supply and cost of land, the incomes of the buyers, not the average, and the absence of any sign of mortgage distress.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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