It didn't take long for another interesting report to comment on the demand side of the real estate equation: Mortgage Rates, Mortgage Demand and Home Prices All Fall
When mortgage rates first fell below five percent in 2009, we called it an emotional landmark, a level that, while not significantly different from the previous week or month, would send up a flag to borrowers that it was time to buy or at least to refinance.
And they did.
Now the 30-year fixed has fallen below four percent, and it all seems suddenly like white noise.
As mortgage rates fell last week, so too did mortgage applications, for both refinances and purchases. Lower rates usually spur refinances, but those actually fell the most, down 5.2 percent week-to-week, according to the Mortgage Bankers Association. Applications to purchase a home fell just 0.8 percent, but they are at historic lows as it is, down 12 percent from a year ago.
The Mortgage Bankers said potential borrowers, "largely remained on the sidelines, seemingly unimpressed," by these rates, which we haven't seen since the 1940's. Perhaps they were unimpressed, or perhaps they were just scared straight by the impetus for the low rates, which was the rush to Treasuries spurred by a global economic crisis. Hmmm.
They may also be on the sidelines because, after a brief and delayed Spring bounce in home prices, values are slipping once again. Home prices fell month to month for the first time in four months, according to a new report from CoreLogic. Another index from Clear Capital, which uses a running quarter, found prices softening in September quarter to quarter, after several strong months. "The company forecasts additional declines through the first quarter and potential for a triple-dip in the housing market."
I'm not sure what a "triple-dip" is, since I'm not at all convinced we were coming out of the double dip that started after the end of the home buyer tax credit.
So many housing watchers fail to note that even in a crisis, housing continues to be a highly seasonal business, and prices always rise in the Spring, even if only slightly.
So we saw some price gains in the last several reports, but they were all still down annually, and down from some pretty weak numbers to begin with. Home sales bumped a bit, but not significantly and not nearly enough to spell recovery. This as foreclosure starts jumped nearly 20 percent in August from July to a 2011 high, according to Lender Processing Services.
So back to the new record-low mortgage rates. They will likely do nothing to spur home buying, but they will provide all kinds of fodder for the current administration to push some kind of enhanced refinance program, which is supposedly targeted at borrowers who are not behind on their mortgages. As the political season heats up, and housing cools down for the winter, there will surely be plenty of shouting at the wind over potential housing stimulus/bailouts, while behind the curtain, politicians, from those in power to those fighting for power, have largely thrown their hands up in despair.
Super Low Rates
My official response is that super low rates mean diddly squat, especially in a deleveraging world. Cheap financing on a declining asset in a environment where no one's job seems safe!
Low rates mean very little right now, and that should speak volumes as to how serious the issues in real estate really are because it has always in the past helped values to push upward.
The latest issue in real estate seems to be the vacuum in demand! Low demand could become the biggest part of the real estate nightmare. It, more than anything else, could help the market waterfall in Critical Mass.
What I potentially see happening in 2012 or 2013 is a large sell off in the stock market, much larger than what we have seen recently. If the stock market rallies into year ending 2011, and then followed by a sell off that took the SP500 below 1,000 and the Dow Jones below 10,000, consumer confidence will crater.
If consumer confidence falls sharply, the world of real estate could come to a relative stand still as demand halts. Ironically, that could happen at the same time the banking sector is set to push the next wave of foreclosure backlog onto the market.
That sounds like a solid recipe for a water fall event!
Hope all is well.
J.D. Rosendahl, Rosey