I guess I am just tired of hearing how good it is when most Americans and Oregonians have yet to experience an economic recovery.
The slow recovery has been blamed on a number of factors (Bush of course) with weather and jobs being the main culprits. Like weather hasn’t been around since man emerged from the hunter-gatherer stage. And with jobs we are just fine with waiters and hotel clerks replacing higher paying executive and engineering jobs. And the middle class, we just sort of rediscovered them after they finally decided the new normal was a good excuse for a new Senate.
Most troubling from my perspective is the housing industry. The headlines continuously proclaim housing is in recovery. Their main focus has been on housing prices which have been increased given the incessant Federal Reserves QE “infinity” programs and Federal initiatives like HAMP, HARP which have spent $billions to modify mortgages and prevent foreclosure. But continuous rumors of recidivism hampering foreclosure prevention programs undermine Administration claims of success.
Yet the fundamentals of the industry are far from solid. Sales of homes remain at 2009 -2010 levels. Existing sales announced this last week were at 8 month lows. Financing is nebulous. Applications have declined massively and purchase applications are dismal. Lack of financing is a primary concern with dependence on government sources dominant. Underwriting standards are unrealistic and dictated by the CFPB, requiring credit ratings in the 700 – 750 range as a minimum.
More recently given the flailing real estate sales market, Fannie, Freddie, and the FHA have reverted to “sub-prime” financing in an effort to revive the failing residential capital markets. Sub-prime financing, this time exclusively at the hands of government controlled lending sources has returned. Mortgage Financing provided is 95% of value and higher, with little regard for the risk of default. Worse, the Federal Government is on the verge of re-instituting European Accounting and Banking Standards (Basel Accords) which at best amplified the financial crisis in 2008. These International Standards seem more an attempt to liquefy the international monetary system than provide security to the domestic real estate industry and mortgage financing system.
Pete the Banker is a Banker who wishes to remain anonymous after what happened to Joe the Plumber by the President and his shock troops in the 2008 election. He is a member of the Victoria Taft Blogforce.
Several indicators reflect a housing market set back.
Uncertainty about the economy, job stability, and inability to finance continue to scare many potential residential buyers away, especially first time buyers. At the recent Pacific NW Mortgage Bankers Conference, volumes cited by the residential mortgage banker community were running some 25% – 30% below 2013 levels, resulting from lower refinance rates and tepid mortgage volume for home purchases.
And the bond market will impact mortgage rates sooner or later. Probably sooner. Take a look at these quotes from CNBC:
“Demand for U.S. Treasurys waned for a fifth consecutive session, ahead of an official auction of 10-year notes on Wednesday and a key Federal Reserve meeting next week.”
“Ten-year notes fell in price to yield 2.53 percent on Wednesday, ahead of a Treasury auction of $21 billion in the benchmark bonds. Auction performance has weakened sharply recently and the last three auctions have tailed.
“Bond yields have risen in recent days—pressuring Wall Street—on fears the Federal Reserve could raise interest rates sooner rather than later. This came after fresh research from the San Francisco Fed suggested investors’ expectations for rate hikes lagged those of the central bank.”
And they continued their ascent on Friday,
Benchmark 10-year notes were last down 18/32 in price with the yield at 2.61 percent, slightly below a session high of nearly 2.62 percent, the highest since July 8.
I think it is hard to suggest that this rate increase is a long term phenomena yet, but at some point the Fed is likely to lose its credibility with Treasury bond investors over its easing policy. Especially given their insistence that unemployment is nearing 6% and inflation only 2% (one can easily challenge both these assertions). But here is the counter argument. As pointed out in this article, it is hard to refute the potential for unmitigated disaster in the international scene (given this President) which would promote the flight of investors to the safety of Treasuries, driving up prices while driving down interest rates once again.
Note this from the MBA President
“A Very Different World Today”
David H. Stevens, President and CEO Mortgage Bankers Association“It’s about an inefficient, and at times contradictory, system with poorly crafted regulations that has gone well beyond consumer protection and now causes credit-worthy borrowers to be rejected from home financing. Some borrowers today with FICO scores of 650 and above and who are willing to put down 10%-15% still cannot get a loan. Because the rules that govern lenders today are unclear making the risk of litigation that much higher, qualified borrowers like these are being edged out of the system. Lenders protect themselves by only approving loans to those with perfect credit.Don’t just take my word for it. The following is a direct quote from a commenter on one of my more recent LinkedIn blog posts:“The process has indeed been miserable, mostly because of silly regulations. The fact that I am self employed has been a further challenge even though I make substantially more than I used to at my old job. The most ridiculous part is that through a strange regulation they insisted that we were not qualified for a conventional mortgage with a much lower monthly payment even though we had the cash to put down, but they had no problem qualifying us for the government backed FHA [loan] for nearly double the monthly payment and very little down. The FHA [loan] would have put us in a serious hole financially as opposed to the conventional mortgage.”Policy makers should take the appropriate steps to clear up this uncertainty and strike the right balance in the real estate finance system. We need a system where homeownership is a doorway to opportunity and borrowers can once again feel safe, confident and secure in their loans, but also a system that thrives in an environment that encourages a competitive, responsible marketplace so business can grow.”