• 11 hours Putin Signs “Digital Iron Curtain” Into Law
  • 14 hours Russian Metals Magnate Sues U.S. Over Sanctions
  • 17 hours Tesla Looks To Jump Into Indian Market
  • 19 hours Global Banks Lay Groundwork To Re-Inflate Asset Prices
  • 1 day Homeowners Experiment With Risky New Investment Trend
  • 2 days U.S. Tech Stocks Look Increasingly Vulnerable
  • 2 days De Beers To Expand World’s Most Profitable Diamond Mine
  • 2 days Ford CEO Gets Raise After Massive Layoff Round
  • 2 days Germany’s Flirtation With Recession Could Cripple The Global Economy
  • 3 days Where To Look As Gold Miners Inch Higher
  • 3 days Google Faces Billions In Fines From European Regulators
  • 4 days The Energy Industry Has A Millennial Problem
  • 4 days Russian Banks Scramble For Sanction Loopholes
  • 5 days Gold ETFs Take A Hit After Four-Month Run
  • 5 days European Union Takes Aim At Ten New Tax Havens
  • 6 days Goldman Defends Trillion-Dollar Corporate Buyback Spree
  • 6 days $600 Billion At Risk As Boeing Fallout Continues
  • 6 days Venezuela Has Yet Another Crisis Developing
  • 6 days Wells Fargo Accused Of “Ongoing Lawlessness”
  • 7 days Hollywood Agency Returns $400M Investment To Saudi Wealth Fund
Lending: The Good, Bad, And Ugly

Lending: The Good, Bad, And Ugly

Aristotle said, “The most hated…

The Chatroom Cartel Running Global Bond Markets

The Chatroom Cartel Running Global Bond Markets

Eight major banks have been…

  1. Home
  2. Markets
  3. Other

Housing Recovery? Nah, It's Just Spiking Mortgage Rates

This morning saw two very strong housing reports:

First-time buyers lift U.S. home sales to 5-1/2-year high

WASHINGTON (Reuters) - U.S. home resales surged to a 5-1/2-year high in May as first-time buyers stepped into the market, the latest indication that housing and overall economic activity were gathering steam in the second quarter.

The strengthening economic outlook likely keeps the Federal Reserve on course to raise interest rates later this year.

The National Association of Realtors said on Monday existing home sales increased 5.1 percent to an annual rate of 5.35 million units, the highest level since November 2009. That put sales this year on track for their strongest gain since 2007.

"It suggests that the U.S. housing market recovery is back on track after the missteps earlier this year. We expect this upbeat tone in the housing recovery to continue as the favorable domestic fundamentals begin to reassert themselves," said Millan Mulraine, deputy chief economist at TD Securities in New York.

--------------

New home sales hit 7-year high

(Time Magazine) - New U.S. single-family home sales increased in May to a more than seven-year high, further brightening the outlook for the housing market and the broader economy.

The Commerce Department said on Tuesday sales rose 2.2% to a seasonally adjusted annual rate of 546,000 units, the highest level since February 2008. April's sales pace was revised up to 534,000 units from the previously reported 517,000 units.

Economists polled by Reuters had forecast new home sales, which account for 9.3% of the market, rising to a 525,000-unit pace last month.

Sounds good, but it's actually just a response to interest rates looking like they want to spike. The yield on US 10-year Treasuries is up by 75 basis points since January, which inevitably means higher mortgage rates. And this month we got them:

US 30-Year Fixed-Rate Mortgage %

Both buyers and sellers are viewing this trend with alarm. Buyers are terrified of being priced out of the market, so they're stepping up and finally making offers. Sellers, meanwhile, are seeing previously-qualified buyers disappear in droves as higher rates raise the effective cost of home ownership. And realtors, you can bet, are working both sides of the market to fan these fears.

The result: sudden, widespread anxiety and lots of new contracts being signed.

This, of course, is a temporary situation. If rates go up from here, millions of first-time buyers (most of whom have student loans and/or are working as bartenders, waiters, or corporate temps and are therefore not mortgage-worthy at higher interest rates) will disappear. If rates stabilize here, the current sales spike will turn out to have been cannibalized from future demand, and a slowdown will ensue.

So the only way for housing to sustainably take off from here is for rates to plunge back to January levels -- which would imply serious trouble elsewhere in the economy.

 

Back to homepage

Leave a comment

Leave a comment