Fed Does Nothing, Rates Rise Anyway
Anyone looking to the Federal Reserve for direction on interest rates is looking in the wrong direction. The Fed is standing pat, but the same can't be said for interest rates. The yield on the 10-year U.S. Treasury note is up 35 basis points in the past month.
As the yield on the 10-year note goes, so too goes the rate on long-term mortgages
. Over the past month, the rate on the 30-year fixed-rate loan is up roughly 20 basis points. The 15-year fixed-rate loan is up roughly 12 basis points. In many parts of the country a quote of 4% on the 30-year loan and 3% on the 15-year loan is the new norm.
The employment report
last Friday exerted some pressure on mortgage rates. Monthly job growth is once again above 200,000. For April, it came in at 223,000. This helped drive the unemployment rate down to 5.4%. That said, not too much pressure was exerted. March jobs were revised down to 85,000 from 126,000. What's more, hourly wage growth remains weak. Wages were up only 0.1% for April.
Many commentators continue to blame Germany for the rise in our mortgage rates. Investors have been selling German bonds in recent weeks. This has driven the yield on the 10-year German bond
up 60 basis since mid-April. To be fair, it's not just the Germans. Most Western European countries have experienced a rise in bond yields.
Given the inter-connectivity of markets, it's not unusual for investors on one side of the Atlantic to take their cue from investors on the other side. Demand for U.S. bonds has abated, prices have fallen, and yields have risen. All these interactions have coalesced to give us the mortgage rates we have today.
As to be expected, when rates rise, activity tends to fall. Overall mortgage activity fell 3.5%, according to the Mortgage Bankers Association's latest survey
. Refinances bore the brunt of the decline, with applications down 6%. Purchases, on the other hand, actually held steady, with applications down only 0.1%. Recent purchase activity remains positive.
Though mortgages are priced a little higher these days, the good news is that availability is also higher. Indeed, availability has risen quite a bit higher in the past six months when we look at the MBA's Mortgage Credit Availability Index. Standards continue to accommodate more people.
Yes, mortgages rates are higher, but they remain low from a historical perspective. Ten years ago we were looking at 6%-or-more on the 30-year fixed-rate loan. In other words, mortgage financing is still very affordable, and very available.
How CNN Got It Wrong on Housing
Cable outlet CNN came out with an entertaining article title "Here's What's Driving Up Housing Prices
." We say entertaining because CNN's explanation is mostly wrong.
In short, CNN surmises that homeowners aren't selling, builders aren't building, and lenders aren't lending. All are untrue.
The latest data from the NAR
show that existing-home sales were up 6.1% in March. This was the biggest monthly jump in 18 months. To have sales, you need sellers. On the other side of the ledger, you need buyers. To say that homeowners aren't selling is a head-scratcher. People are selling and people are buying, and more are doing both according to the latest data.
As for builders not building, the data again show otherwise. CalculatedRiskBlog.com
reports year-over-year data for nine major homebuilders. Net orders are up 20.3% and settlements are up 13.8%. Homebuilders are building more and selling more. What's more, they are getting more for what they are selling. The average new-home price is up 3.8%.
To counter the claim that lenders aren't lending is hardly worth the effort. Lenders are lending, and they are lending to more people. Look no further than the trends in purchase applications and the availability index (featured above). 2010 is five years ago. It's time to live in the present.
So what is driving up housing prices There are myriads of variables that impact housing prices, and most are specific to the local market. All we can say is that houses are being sold, built, and financed. The proportion, though, is unique to each market.