Displaying items by tag: Mortgages
After about three years of being a laggard and worrying investors that a recession may be coming, US real estate looks to be turning the corner. Not only have home sales been rising, but new mortgage data looks very encouraging. Home lenders extended $2.4 tn in new home loans last year, the most since 2006. That figure is a whopping 46% increase from 2018. One economist from Freddie Mac described the situation bluntly, saying “When a large and cyclical part of the economy—housing—is starting to improve, it’s a good sign for the economy at large”.
FINSUM: It is important to note that most of this was refinancing activity because of the drop in rates, so it is not as massive an increase as it appears. Still, good momentum.
US Real estate has been a worry spot for the last few years. For the last three years or so everyone thought real estate might be the initial signal that the economy was headed lower. However, that never materialized and real estate has been looking modestly better for the last several months. The end of 2019 continued that streak as existing home sales rose 3.6% in December as low unemployment helped support the housing market.
FINSUM: We think the housing market is just solid and steady right now. No huge speculative gains, no gigantic increases in debt etc. It is a nice contrast to publicly-traded securities!
Banks across the country are under pressure, and it is starting to show. Four US banks have failed already this year (three in the last month) compared to zero last year. The reasons why are many, but low interest rates and strong competition have been impacting the space. The four bank failures do not seem to be due to a particular asset class, but particular idiosyncratic circumstances. Still, as mortgages have seen lower rates, banks are more and more likely to move into more risky areas to boost yields.
FINSUM: In 2006 there were zero bank failures, in 2007 there were three, in 2008 it was very ugly. We do not think we are going down the same rode, but it is a sign worth noting.
Hopes for the housing market had been rising strongly in the last couple of months. After nearly a year in the doldrums, existing homes sales rose for a pair of months in July and August, giving the market hope that falling mortgage rates had revived the market. However, in September, sales again fell sharply, with existing home sales dropping 2.2% from the previous month. Prices, however, are rising, as short supply is moving asking prices higher.
FINSUM: Prices are holding up okay, but there is not much buying and building occurring, which means housing will be contributing less to the economy overall.
The inverted yield curve may be odd, and negative yields in Europe may be strange, but the weirdest current perversion of markets (or is it the “new normal”?) is in Denmark specifically. That oddity is the negative rate mortgage. Yes, homebuyers are getting paid to take out mortgages to buy a home. Jyske Bank, Denmark’s third largest lender, is offering a mortgage rate of -.50% before fees.
FINSUM: So this is already happening in Europe, but it may have limited effects given the continent’s demographic struggles. It is hard to imagine this happening in the US, but if it did, we bet it would cause a housing boom.