Mortgage Rates: Peeking Into The Future
Follow the ten year bond
When bond yields drop, so do mortgage rates. Conversely, when yields rise, so go mortgage rates. In mid-December,
the 10-year bond yield was just over 2%, The 10-year bond yield fell now stands at 3.57%. Afraid that rapidly rising rates will sink the housing recovery, the government began to buy back its own debt, up to $300 billion of long-term Treasurys stimulate demand. A 1.57% short term move is quite a spike, Especially in the face of the Feds decision to keep interest rates low to float the economy through this rough patch.
Housing Price is Improving
Banks and the FHA and Freddie Mac continued to tighten standards on residential loans and yet the housing markets continue to improve. Pending home sales, a leading indicator of existing home sales, increased 1.0 percent to 96.6 from 95.6 in November, and remains 10.9 percent above December 2008 ( Via NAR).
Since bottoming out in in June, home prices have seen upticks and sales have lifted off of the deep trough lows. Goldman Sachs estimates that Govt stimulus has lifted home prices by about 5%. Moodys now thinks that home prices are now in line with rent ratios and fairly priced, about 3.5% over valued.
The Vs and The Ws
Momentum
To be sure, there are those who see large declines ahead, given another that 6 million homes are expected to foreclose in the next two years and we have a sizable, shadow inventory just waiting to come to market. In fact, foreclosure filings increased by 14% in December.
But job loss is now almost negligible now and the economy is expected to continue growth. All of this is good for housing, even thought momentum is likely to slow as the Govt steps back from the pump.
Commercial real estate, which has seen declines of 30-50%, is the next big wave of asset destruction. Tishman Speir recently handed keys back to the banks for more than 56,000 apartments in New York City.
Curious though, REITs were expecting to pick up good buys of distressed assets as owners walk away, but they are finding few good deals. The Vanguard REIT index is up 53% for the year and has dropped back about 10% year to date. Perhaps the banks are holding onto the prime assets and looking forward to better days, when property starts to pick up. A look at the 2010 may not exactly be the power house turn around year we hoped for, but it looks like our still wobbly feet will stand on firmer ground in the near future in spite of some really horrible events coming our way.
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