Houston Mortgage Weekly Review

We have a great review of the past week’s mortgage activity by Lou Barnes at ratewatch.com showing lots of things happening on multiple-fronts that will affect mortgage rates going forward.

More positive US data and relaxation of European frights have combined for higher interest rates and support for Wall Street’s warm-fuzzy machine.

One week ago, downgraded credit in Europe and another failure in Greek debt negotiations had taken the 10-year T-note to 1.85% and big-equity refis a hair below 4.00%. Today, nothing is resolved in Europe, but nothing is falling, either, so 10s are back to 2.02% and even a 20%-down low-fee mortgage is near 4.25%. Adios, refis.

The mortgage spread to 10s — 2.25% — is very wide, now opened in part by the new-mortgage surcharge inflicted by Congress and the White House to pay for part of the payroll tax cut. Which the public doesn’t know, because mainstream media can’t be bothered to cover the madness, and the Fed every day trying to close the spread.

The most striking US data is the decline in weekly claims for unemployment insurance, which seem decisively to have dropped below 400,000 (352,000 last week) where we had been stuck for most of 2011. Fewer layoffs is not hiring, but it is good news. Regional Feds report up-ticks in manufacturing. Inflation is receding from its commodity push last year, overall zero change in December
CPI.

Then a data-interpretation argument, this time housing. The consensus is very optimistic that housing is past its bottom and 2012 will mark beginnings of recovery for construction and resales. I wish… oh, how I wish. The optimists assert pent-up demand, household formation, lower listed inventory, and faith. Halleluiah, brothers and sisters.

Always-suspect NAR has reported a 5% gain in sales of existing homes in December. Also a balmy, La Nina split-jet December, northern-city NFL finales and playoffs in dry 30-degree sunshine. Economic data is adjusted for season, but not weather. NAR also reported that one-third of contracts failed, its members correctly blaming mortgage underwriting and appraisals.

There is some legitimacy to hopes for new construction because builders are agile in shifting location and price point, and some places really are short of housing (North Dakota). However, new delinquencies are not improving, there is no work-off of distressed inventory, and all major measures of prices resumed their declines early last fall. The household-formation argument is based on recent historical pattern, but a hard look contradicts: we have a 1930s-style decline in birth rate, and for good or ill a sharp drop in illegal immigration.
Pent-up demand is offset by pent-up caution about prices.

The void in political leadership continues, and among economic thinkers of all stripes the widening, hysterical scatter of what-to-do-if-you-were-king.

Heaven help moderates: Democrats were thrilled this week by Mitt Romney’s exposure as wealthy (who knew?) and paying completely legal taxes, if low in some parts. This guy tithes, 10% of his considerable income to his church. Lefty Democrats think that tithing is taking 10% of somebody else’s income, and Righty Republicans are in a 16th century argument about what a church is, and whose
is acceptable.

Economic policy has two centers of confusion: stimulus versus austerity, and the central banks. Ordinarily sensible people chant: short-term stimulus, then austerity. Pardon: when is then? Less sensible people demand spending on infrastructure. Maybe we could avoid Japan’s bridges-to-nowhere, but even nifty new bridges to somewhere add what multiplier to economic growth? Governor Moonbeam’s
California bullet trains are the most questionable public investment since the projects at Pruitt-Igoe.

The central banks. I hear more and more center-thinkers drifting toward the Libertarian posse. A good guide for 10 years has been the www.hoisingtonmgt.com quarterly, but the newest issue demands “a five-year moratorium on all new Fed actions.” A bright, studious investment manager and friend (better nameless) refers to Fed “meddling.” As we enjoy better US data, and no new recession, please understand that the Fed and ECB are holding open our living space against crushing deflationary pressures. And until accidental healing, or somebody finds the support to do useful things, the issue is in doubt and central banks are playing for time.

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