Mortgage Outlook Part I

Everyone always asks this time of year what are mortgage rates going to do this coming year? Well we don’t have a crystal ball and if we could predict the future we’d be in Vegas and not the mortgage business.

We will have a year-end & year beginning series of this coming year’s mortgage outlook from some of our partners in the industry and our own opinion of where mortgage rates will be in 2012 for Houston, TX and throughout the state. Let’s just hope the Mayans didn’t do mortgages!

Our first in this mortgage series is from Lou Barnes from

A New Year begins next week, and it is time for my annual dodge. Peter Drucker, one of the world’s few worthwhile business theorists: “Nobody can predict the future. The idea is to have a good grasp of the present.”

This year, no flinching from predicting. Why such foolish courage? In several econo-political arenas we have dithered and fiddled so long that things are going to happen, and all I have to do is guess what. In order from easiest to hardest….

Interest Rates. Nothing big. Maybe nothing at all. The bond market is behaving as though the Fed intends a 2.00% cap on 10-year T-notes. Why argue?

US Economy. As is. The fantastic stimulus in the pipeline should keep it afloat, but the housing drag will hold it low in the water. More people will find jobs, but paying less than the old ones. The primary risk: if the foreclosure engine resumes without an adequate mortgage supply, it will undercut home prices (again). All other risks to us are from overseas. Upside surprises will be limited to regions first-in to the housing bust, first to recover, my home state Colorado a fair bet. Don’t look for a general economic improvement, if only because fiscal austerity lies just over the horizon.

China. Got this one right last year, so double down. It had to fight inflation in 2011, and did, and is slowing as a result. Other than that, nobody knows what will happen there, not even China. Too big, and too preoccupied by power transfer under way. For the time being these leadership transfers are non-violent, but behind all the black suits, white shirts, and bland ties lies a contest that would impress Corleone and Capone.

Inflation. Just forget about it. Year after year after year people have worried about it, and it’s not in the cards. Forces of deflation are still far too strong.

Europe. Toast. Said so last year, and nothing has changed. The ECB will prevent an immediate banking collapse, so timing will depend on Clinton’s Law: “It’s the economy, stupido.” When austerity bites, economies shrink,
tax revenue falls, and budgets get worse, then we’ll see about political stability versus suicidal clinging to the euro.

That was the easy stuff. The Hard Three are related (ain’t they all?).

1. Modern central banks date to Walter Bagehot’s concept of “lender of last resort” in 1873. That entire project is on trial, doing well but not getting anywhere.  Inventing non-inflationary cash with which to put down waves of global bank runs, cushioning but unable to stop an asset-value disaster, and creating a starvation-level credit supply. Bernanke has been inspired, now guiding Draghi at the ECB, but they cannot reach the root issues. Without a root-fix, the credit house of cards just gets bigger, more vulnerable to some Ron-Paul idiot tying the hands of one of the central banks.

2. The Fed and ECB in their desperation to prevent a replay of 1930-’32 are buying time not just for the financial system, but have become unwilling co-dependents of the local politicians who are wasting every second provided
(UK excepted). I thought last year that the frustration and exhaustion of the American people would force a budget deal and a big one. Wrong. Both political parties are engaged in lies so big that they seem to believe themselves. Shrinking government and regulation will not balance our budget. Taxing rich people will not do it, either. The middle class has promised itself benefits that it cannot afford, and neither party is willing to say so. Yet, I cannot believe that the tombstone of the United States of America will say, “Liked Being Lied To.”

3. Tuesday, November 6th. A bunch of Tea Party yahoos will be sent home, elected in frustration with the President, not to misbehave. Neither party will have a working majority in Congress. Just as well. Twelve-straight years of Presidential failure have consumed all margin of safety, and we will either fix our budget within the next Presidential term, or see “tombstone,” above.

Maybe, just maybe, this mix will enable the next President to know what to do for us and to us: a stiff, bad-hair Michigander/Utahan Republican Governor of Massachusetts (wow) who, as he says, has signed both sides of paychecks.

2012 is make or break. Simple as that.

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