THE CREDIT CRISIS: THE BUBBLING BOND MARKET RICK TOBIN
Mortgage Rate Directions & the Housing
Market
Not every home buyer or investor over the
past few years has been an all cash buyer
(individual or ins-titutional). A very high percentage of home buyers have been owner occupied
that same borrower may only qualify for a new
mortgage $100,000 less if the future interest rates hit
closer to 5%. With fewer mortgage borrowers able to
qualify for larger loan amounts due to higher mortgage
rates, then home price appreciation levels may begin
to “taper” off, ironically.
buyers in need of highly leveraged FHA loans
(96%+%+ LTVs). The thirty (30) year fixed
mortgage rate has increased as much as 40%
from their near record low rates at 3.25% over
the past twelve (12) months which, in turn, has
led to higher FHA, and other loan types, costs.
As compared with past financial time periods such as
the early 1980s when the U.S. Prime Rate hit as high
as 21.5%, today’s mortgage rates are still incredibly
cheap. Banks need to ease up somewhat on their
underwriting guidelines as well, so that more borrowers
may qualify for more
loans. When the
The Fed may still
capital markets ease
be purchasing
up more and more
upwards of $85
hopefully, then we
billion of mortgage
may see more stability
backed securities
in the financial and real
and Treasury
estate markets.
Bonds each and
every single month.
A more solid U.S.
Economy is needed more
than another “bailout”
Without their same
consistent level of
capital
The American economy
investments, then
needs to strengthen more
bond and rate
yields may only worsen. Is a 5% thirty (30) year
without magical and mythical “bailout” programs
fixed mortgage rate more likely prior to the end
which seem to increase the U.S. debt numbers,
of 2013 as suggested by some economists and
weaken
financial analysts? Or, will we possibly reach
increasing inflation numbers which hurts gasoline,
6% to 7% mortgage rates which have been
food, and other consumer goods prices while helping
more common in recent decades?
certain asset classes like real estate in both the short
the
U.S.
Dollar,
and
cause
rapidly
and / or long term.
Regardless, increased mortgage rates make it
more challenging for buyers to qualify. If a
If the national job market numbers improve more in
potential client may qualify for a $400,000
the near term, then the potential tapering of QE
mortgage loan at a 3.25% interest rate, then
money may not adversely impact our economy as