Tuesday, May 12, 2009

Why mortage rates aren’t going up.. yet.

Nice chart from calculated risk. The 10 year yield has shot up since March, while the mortgage rates have stayed at their historical low levels.

CR: The spread is back down near the lower end of the range - and this suggests any further increase in the ten year yield will push up mortgage rates.
Hmm.. Spreads are almost back to where they were in the beginning of 2007, before the credit crisis implosion. This is an excellent sign and I wonder why it hasn't received wider coverage.

Anecdotally, I know of at least 2 first-time home buyers in San Diego who have been complaining of missing the bottom as prices have started trending up. Generally, the feeling among the crowd is that the bottom is in. Consensus seems to be that 2009 would be the year that prices bottom. Won’t be surprising to see a bout of speculative buying as pent up demand from buyers on the sideline materializes. (Just some non-scientific bullish sentiment data point of the day. )

People’s long term perception on housing hasn’t changed. It’s still an asset class which should “give them the 10% a year return” it always has. It amazes me how vocal real estate proponents tend to be, conveniently ignoring the long-run housing price trends. Most of the foreclosure sales have been to investors, who are essentially buying for the rental income. Problem is rents have been declining sharply as well. I live in La Jolla(UTC), and rents on some really nice 2-beds are down from 1650-1700 to 1400-1500. Figure in taxes, maintenance, HOA fees and the rent vs. buy decision still favors the renter(at least marginally).

The first-time home buyer tax break, record low mortgage rates, extremely negative media sentiment on housing. This could be an interesting summer to watch.

Obligatory long-term Case Shiller housing price index attached.

Mortgage Rates and the Ten Year Treasury Yield