Mortgage Interest Rates... why up? (heloc, foreclosures, credit, financing)

[piyf]

LOL, this isn't good news for the housing market. A market that's still in the toliet in many parts of the US. Now compound that with rates getting above 5%. If they get close to 6% kiss any steam the housing market had over the past few months. Houses will be staying on the market a lot longer with few wanting to pay over 1% more.

But I will use it to my advantage though when I go house shopping

[VictorBurek]

Mikey... you seemed to have disappeared. Here is more evidence of consumers becoming more optimistic about their own personal finanancial situation and their outlook on the economy.

Consumer Sentiment in U.S. Increases to Eight-Month High - Bloomberg

[QuilterChick]

Originally Posted by Lacerta

I think Mortgage rates reach 10-month high is a pretty realistic portrayal of the current situation. It doesn't try to sugarcoat it, it says straight out that the numbers are not great, but they are an improvement, and that is bringing some back into the stock market.

To the OP, it is also good to keep in mind that the incredibly low interest rates of the past decade are an anomaly in historical rates. There was a time that anything below 10% was a fabulous rate. There was even a time when anything below 20% was a good rate. Today's interest rates really have nowhere to go but up.

*Edit, to your actual questions. It doesn't prevent people from buying or refinancing, however it will make the money more expensive to borrow, so it might make them able to afford less house than they could have, or make it not worthwhile to refinance anymore. And yes, higher interest rates do slow down the real estate market. But as I said above, interest rates are still very good. As for the future, unfortunately none of us has a crystal ball. I really don't think it is going to go above about 6% in 2011, but I also would have never predicted it would have dropped as low as it did over the last year. By 2012, your guess is as good as mine, because it would only be a guess.

Here is an article from CNN Money on the inevitable mortgage interest rate rise. As I have said many times, a slight uptick in the mortgage rates will create some activity in the housing market, as confirmed in this article. People who have been on the sidelines waiting for an interest bottom should get out there now before rates get even higher.

They're back! 5% mortgages - Feb. 10, 2011

[mortimer]

Originally Posted by VictorBurek

... consumers becoming more optimistic ...

I think a lot of that comes from the idea that if you haven't gotten laid
off by now, you'll probably keep your job. That makes perfect sense.

There are still some things that make me doubt the statistics.

For the January numbers, less than 40k new jobs were created yet
the unemployment rate went down from 9.8% to 9.0%. It didn't
drop because unemployment dropped, it dropped because many have
just dropped out. A better measure is the 'employment rate.'

That is the percentage of the working age population currently employed. That number
is 67% or so and it hasn't improved as much as the 'unemployment rate' has improved.

I think there is a two-tier economy now. Those without jobs are eating
macaroni and those with jobs are buying cars and eating at restaurants.
The question is; can the economy really grow if you throw away 10% of
the population? Also, will the people with jobs, but who are under water
with their mortgage really going to start spending much more than they
are now? I don't think so. Almost 30% of mortgages are under water.
What's the percentage of families that have a mortgage? 50% Again,
that's 1/6th of the population that is economically stressed - job or not.

Also, the December number ( about 300k jobs ) shown in an earlier post is only
enough jobs to keep the unemployment rate ( the real one ) steady. The economy
needs 400k jobs - per month - to actually grow.

I read yesterday in the WSJ that the economy would need to generate 750k jobs
per month for the next three years ( an impossible task ) to bring the
unemployment rate down to 5% ( considered to be about "full employment" ).

Sure, that "consumer optimism" and the unemployment rate can fluctuate around a lot,
but if the six-month trend isn't positive then that's not really cause to celebrate.

On topic, interest rates are set by the bond market ( a much bigger market than
the stock market ). The US trade deficit just ticked up again. The rates in the
bond market are set by those who lend us money so we can buy crap from other
countries. The U.S. is a nation living beyond its means and that means that
rates that other countries charge us will tend to go up and up and up.

Although we ( the US Fed ) is creating money from nothing, so is everyone
else. Our money is crap, but it's less crappy than the Euro or the Pound,
so the process of others ( mostly Asia ) raising our rates will take time.

I think we will eventually go back to 7% mortgage rates as the normal rate. It might
take a few years, but it's going to happen. Historically, that's not a high number, BTW.

The housing market will adjust to that reality. It will adjust by lowering the
prices of new and existing houses - just like the bond market - bond prices
go down when the rate of interest goes up. Again, it makes perfect sense.

[VictorBurek]

Originally Posted by mortimer

I think a lot of that comes from the idea that if you haven't gotten laid
off by now, you'll probably keep your job. That makes perfect sense.

There are still some things that make me doubt the statistics.

For the January numbers, less than 40k new jobs were created yet
the unemployment rate went down from 9.8% to 9.0%. It didn't
drop because unemployment dropped, it dropped because many have
just dropped out. A better measure is the 'employment rate.'

That is the percentage of the working age population currently employed. That number
is 67% or so and it hasn't improved as much as the 'unemployment rate' has improved.

I think there is a two-tier economy now. Those without jobs are eating
macaroni and those with jobs are buying cars and eating at restaurants.
The question is; can the economy really grow if you throw away 10% of
the population? Also, will the people with jobs, but who are under water
with their mortgage really going to start spending much more than they
are now? I don't think so. Almost 30% of mortgages are under water.
What's the percentage of families that have a mortgage? 50% Again,
that's 1/6th of the population that is economically stressed - job or not.

Also, the December number ( about 300k jobs ) shown in an earlier post is only
enough jobs to keep the unemployment rate ( the real one ) steady. The economy
needs 400k jobs - per month - to actually grow.

I read yesterday in the WSJ that the economy would need to generate 750k jobs
per month for the next three years ( an impossible task ) to bring the
unemployment rate down to 5% ( considered to be about "full employment" ).

Sure, that "consumer optimism" and the unemployment rate can fluctuate around a lot,
but if the six-month trend isn't positive then that's not really cause to celebrate.

On topic, interest rates are set by the bond market ( a much bigger market than
the stock market ). The US trade deficit just ticked up again. The rates in the
bond market are set by those who lend us money so we can buy crap from other
countries. The U.S. is a nation living beyond its means and that means that
rates that other countries charge us will tend to go up and up and up.

Although we ( the US Fed ) is creating money from nothing, so is everyone
else. Our money is crap, but it's less crappy than the Euro or the Pound,
so the process of others ( mostly Asia ) raising our rates will take time.

I think we will eventually go back to 7% mortgage rates as the normal rate. It might
take a few years, but it's going to happen. Historically, that's not a high number, BTW.

The housing market will adjust to that reality. It will adjust by lowering the
prices of new and existing houses - just like the bond market - bond prices
go down when the rate of interest goes up. Again, it makes perfect sense.

I wont say i disagree with you... i said at the beginning of this discussion that the economy APPEARS to be improving. Regardless of what i think or anyone else thinks, the stock market believes the economy is improving.

[mortimer]

Originally Posted by VictorBurek

... economy APPEARS to be improving.

Yup.

" Feb. 11 (Bloomberg) -- Consumer confidence rose in February to the highest
level in eight months as decreasing unemployment lifted Americans' spirits."

University of Michigan: Consumer Sentiment 2010
------------------------------------------------
Jan 74.4 - Feb 73.6 - Mar 73.6 - Apr 72.2. - May 73.6 - Jun 76.0
Jul.. 67.8 - Aug 68.9 - Sep 68.2 - Oct 67.7 - Nov 71.6 - Dec 74.5
-------------------------------
Jan 2011 - 74.2 - Feb 75.1 <<<<---- This is hardly a ( good ) trend.

We can also see by this that an uptick for a couple months means nothing.
Inferring that the economy is getting better from a two-three month uptick is an error.

Originally Posted by VictorBurek

... stock market believes the economy is improving.

Right. The market predicts. It's a much better indicator.

For the time being, the trend is up. Better times are coming for the next six months (or so).

If you are among the unemployed, it means nothing to your job prospects.

If you have been unemployed for a year or more, you are never working again.
I don't believe, in the short or medium term, that the economy can continue to
improve if the economy is just going to throw away 10% or so of the population.

When the stock market turns down, the economy will still tick along for a while.

[MikeyKid]

Originally Posted by VictorBurek

Mikey... you seemed to have disappeared. Here is more evidence of consumers becoming more optimistic about their own personal finanancial situation and their outlook on the economy.

Consumer Sentiment in U.S. Increases to Eight-Month High - Bloomberg

Sorry - work and life pulls me away too often... we go back far enough by now where I hope you don't take anything from me personally!

Cool article, thanks.

I know you want me to try and explain why interest rates are going up vs. Bernanke's options, but I just don't have the time right now.

So many references to stocks!! I just hope you realize that investors are not buying stocks... Insider selling outpaces buying by insane numbers. The volumes are at all time lows. There have been net outflows out of the market for next to forever now... Yet, the market goes up. Bad news, good news, neutral news - green stocks day. Melt up. Equities have completely lost fundamentals and are traded by computers with the money coming from the Fed POMO. Monetizing debt and giving the money to the investment bankers to throw into equities is not a viable long term strategy. Ron Paul gets it - he just called Bernanke on it in the recent congressional hearings. Bernanke himself lied when he stated matter of factly that he would never monetize debt... yet, here he is doing it.

It's the banks... Matt Taibbi from Rolling Stone writes a good blog and several excellent books, Inside Job is a good movie, and there's always Tyler Durden keeping them honest way better the Anderson Vanderbilt Cooper can... The MSM headlines can be nice and fluffy sometimes, but it doesn't always come down to a blurb paragraph.

[VictorBurek]

Originally Posted by MikeyKid

Sorry - work and life pulls me away too often... we go back far enough by now where I hope you don't take anything from me personally!

Cool article, thanks.

I know you want me to try and explain why interest rates are going up vs. Bernanke's options, but I just don't have the time right now.

So many references to stocks!! I just hope you realize that investors are not buying stocks... Insider selling outpaces buying by insane numbers. The volumes are at all time lows. There have been net outflows out of the market for next to forever now... Yet, the market goes up. Bad news, good news, neutral news - green stocks day. Melt up. Equities have completely lost fundamentals and are traded by computers with the money coming from the Fed POMO. Monetizing debt and giving the money to the investment bankers to throw into equities is not a viable long term strategy. Ron Paul gets it - he just called Bernanke on it in the recent congressional hearings. Bernanke himself lied when he stated matter of factly that he would never monetize debt... yet, here he is doing it.

It's the banks... Matt Taibbi from Rolling Stone writes a good blog and several excellent books, Inside Job is a good movie, and there's always Tyler Durden keeping them honest way better the Anderson Vanderbilt Cooper can... The MSM headlines can be nice and fluffy sometimes, but it doesn't always come down to a blurb paragraph.

I dont take it personally and rather enjoy some of our back and forth. I read zerohedge as well.

[MikeyKid]

Originally Posted by VictorBurek

I dont take it personally and rather enjoy some of our back and forth. I read zerohedge as well.

Good - because entitlements are not improvements, they're band-aids robbing from our future. It's across the board propping everything up via debt.

At the low end, all time high in food stamp usage and 99 weeks of UE benefits... at the high end, the wealth effect of monetizing debt and buying equities. I don't see how you can realistically call things better with these things going on.

[mortimer]

Originally Posted by MikeyKid

I enjoy them ( your back-and-forth ) too.

Originally Posted by MikeyKid

I don't see how you can realistically call things better ...

The "better" means that business conditions are better for a business selling
cellphones, corn, cotton, .... don't forget gold mining ... et al.

It doesn't mean it's better for the person who used to manage a Novell network
or was an HR rep in some plant that closed and went to China.

Even if you have a job or own a business, a lot of the stuff you think you buy
with "your" money is really just borrowed money from China or Malaysia or
whatever. Your hard-earned dollars don't mean diddly-squat to them if they
can't turn around and buy anything they want with them.

Last year the US borrowed $497.8 billion from other countries ( $374.9 billion
the year before that ). Remember all the people that used their homes as ATMs?
The US is using its status as issuer of the "Reserve Currency" of the world like
that right now. There will come a time when what happened to the ATM-house-guys
happens to the US. We won't like it when oil is $300/bbl and gasoline is $10/gallon,
but it's coming. It's coming soon. This will drive mortgage rates over 10% for a while.