Comments on: Why are Mortgage Rates so Low? http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html Southern California is Experiencing a Real Estate Bubble like never before Mon, 01 Dec 2008 19:53:35 +0000 http://wordpress.org/?v=2.6.5 By: Southern California Real Estate Bubble Crash Blog » Blog Archive » What to do, Part Two http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-63105 Southern California Real Estate Bubble Crash Blog » Blog Archive » What to do, Part Two Thu, 03 Jul 2008 05:25:35 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-63105 [...] easing campaign by the Federal Reserve Bank.  To that point, just over 2 years ago, I wrote about interest rates and what that portended: 1. Why are rates going down over time? 2. Is there a savings glut? 3. Why are risk premiums [...] [...] easing campaign by the Federal Reserve Bank.  To that point, just over 2 years ago, I wrote about interest rates and what that portended: 1. Why are rates going down over time? 2. Is there a savings glut? 3. Why are risk premiums [...]

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-374 Anonymous Wed, 14 Jun 2006 17:56:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-374 Great article! www.mortgage-911.info mortgage, find best mortgage rate and mortgage calculator. Great article! http://www.mortgage-911.info mortgage, find best mortgage rate and mortgage calculator.

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-375 Anonymous Wed, 26 Apr 2006 20:24:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-375 I agree. The reckoning to credit markets is well under way. Beware and hold on. I agree. The reckoning to credit markets is well under way. Beware and hold on.

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-376 Anonymous Wed, 26 Apr 2006 06:17:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-376 IF anything is going to cause a so-called reversion to the mean in housing, it will come from the credit markets. Again, that is a big if. IF anything is going to cause a so-called reversion to the mean in housing, it will come from the credit markets. Again, that is a big if.

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-377 Anonymous Wed, 26 Apr 2006 03:20:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-377 "I see a credit event on the horizon"<BR/><BR/>Yep! “I see a credit event on the horizon”

Yep!

]]> By: John Doe http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-378 John Doe Wed, 26 Apr 2006 03:10:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-378 Yes, Both Anonymouses,<BR/><BR/>When I first heard about the global savings glut, I was very skeptical myself... but after reading some scholarly articles on the subject, I admit that the amount of savings is indeed much higher than the world needs.<BR/><BR/>Of course, it is all relative. Those in the undeveloped world are still crying for capital, but we are awash in a sea of liquidity that has for some reason stuck in developed economies fueling a world wide housing bubble (crummy homes in Costa Rica are going for 500K+ for goodness sakes!) This cannot end well for the owners of low-yield bonds. They may find the losses from such investments are far worse than they could ever imagine. So much for FNM or anyone else backing those if they are bankrupt.<BR/><BR/>I see a credit event on the horizon. I cannot imagine it happening any other way. Risk premiums are just out of whack. Yes, Both Anonymouses,

When I first heard about the global savings glut, I was very skeptical myself… but after reading some scholarly articles on the subject, I admit that the amount of savings is indeed much higher than the world needs.

Of course, it is all relative. Those in the undeveloped world are still crying for capital, but we are awash in a sea of liquidity that has for some reason stuck in developed economies fueling a world wide housing bubble (crummy homes in Costa Rica are going for 500K+ for goodness sakes!) This cannot end well for the owners of low-yield bonds. They may find the losses from such investments are far worse than they could ever imagine. So much for FNM or anyone else backing those if they are bankrupt.

I see a credit event on the horizon. I cannot imagine it happening any other way. Risk premiums are just out of whack.

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-379 Anonymous Wed, 26 Apr 2006 02:11:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-379 Here is something to consider.<BR/>One of the main reasons interest rates are lower is due to the Carry Trade. The Carry Trade took easy money from Europe and Japan and it poured into US Treasuries holding down interest rates and from there to mortgage backed securities then to REITS and other investments. That is what fueled the last RE boom. Now that Japan has greatly reduced its reserves and has announced it is marching towards adding cost to its currency combined with Europe tightening, that dynamic has changed. This is the first time in 20 years all three central banks are tightening at the same time. It's interesting this global glut of liquidity is now finding its way out of US Treasuries and into commodities. That will find its way into the CPI numbers and the FED will have to tighten more than anticipated. So you have reduced demand in the long bond because of structural changes of the carry trade, and rising commodity prices which are inflationary which will force the FED to continue to tighten on the short end. All of this while RE has just come off its biggest run-up in this country's history and affordabilty is in the single digits in bubble markets. It kind of reminds of that movie "The Perfect Storm" Here is something to consider.
One of the main reasons interest rates are lower is due to the Carry Trade. The Carry Trade took easy money from Europe and Japan and it poured into US Treasuries holding down interest rates and from there to mortgage backed securities then to REITS and other investments. That is what fueled the last RE boom. Now that Japan has greatly reduced its reserves and has announced it is marching towards adding cost to its currency combined with Europe tightening, that dynamic has changed. This is the first time in 20 years all three central banks are tightening at the same time. It’s interesting this global glut of liquidity is now finding its way out of US Treasuries and into commodities. That will find its way into the CPI numbers and the FED will have to tighten more than anticipated. So you have reduced demand in the long bond because of structural changes of the carry trade, and rising commodity prices which are inflationary which will force the FED to continue to tighten on the short end. All of this while RE has just come off its biggest run-up in this country’s history and affordabilty is in the single digits in bubble markets. It kind of reminds of that movie “The Perfect Storm”

]]> By: Anonymous http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-380 Anonymous Wed, 26 Apr 2006 00:16:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-380 The world is awash in money. Maybe not you, or me, or the friends we hang with, but the world at large is swimming in money. <BR/><BR/>Yes, there is a world wide savings glut.<BR/><BR/>Rates are low and risk premiums are thin simply because there are so many dollars chasing so little opportunity.<BR/><BR/>Yes, a recession in '07 is possible IF corporate spending doesn't compensate for the inevitable drop-off in consumer spending. But that is a big if. Corporate borrowing has been extremely low because they are flush with cash, and the probabilty of ramped up spending in '07 is high. The world is awash in money. Maybe not you, or me, or the friends we hang with, but the world at large is swimming in money.

Yes, there is a world wide savings glut.

Rates are low and risk premiums are thin simply because there are so many dollars chasing so little opportunity.

Yes, a recession in ‘07 is possible IF corporate spending doesn’t compensate for the inevitable drop-off in consumer spending. But that is a big if. Corporate borrowing has been extremely low because they are flush with cash, and the probabilty of ramped up spending in ‘07 is high.

]]> By: awaiting bubble rubble http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-381 awaiting bubble rubble Tue, 25 Apr 2006 23:21:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-381 China financing its trade deficit with the US by buying 10 year treasuries. If the dollar starts to drop (oh, what was that sound?!) they might want to reduce their exposure, however, and reduce their purchases of the 10 years, which are the biggest factor in mortgage rates. China financing its trade deficit with the US by buying 10 year treasuries. If the dollar starts to drop (oh, what was that sound?!) they might want to reduce their exposure, however, and reduce their purchases of the 10 years, which are the biggest factor in mortgage rates.

]]> By: jjc1924 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-382 jjc1924 Tue, 25 Apr 2006 23:13:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-382 I think you have to look at the amount of people that were burned from the 2001 recession and also look at the amount of money that foreign investors have dropped into the dollar and other treasuries investments. The 30 yr. held strong for almost two years now as the rates have been rising consistently. At some point the demand for conservative investments will weaken and the rate will catch up. The long term yields have the lag in them. I think we are inevitably going to hit 8% by 2007. I think you have to look at the amount of people that were burned from the 2001 recession and also look at the amount of money that foreign investors have dropped into the dollar and other treasuries investments. The 30 yr. held strong for almost two years now as the rates have been rising consistently. At some point the demand for conservative investments will weaken and the rate will catch up. The long term yields have the lag in them. I think we are inevitably going to hit 8% by 2007.

]]> By: John Doe http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-383 John Doe Tue, 25 Apr 2006 21:56:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-383 I meant to say it added the 3% in the last 2.5 years, so can efficiency really account for that much in recent movement? I meant to say it added the 3% in the last 2.5 years, so can efficiency really account for that much in recent movement?

]]> By: John Doe http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-384 John Doe Tue, 25 Apr 2006 21:55:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-384 Todd,<BR/><BR/>True, even so, do you think the flat or inverted yield curve is also a product of efficiencies? Not meant to be antagonistic at all; I don't think I have heard any thoughts from someone in the mortgage business about risk premiums.<BR/><BR/>I guess I could see maybe a .5% or .75% at most being shaved off the rates over the past 25 years or so. Capital markets have gotten considerably better mostly because of the global glut of liquidity, however in the light of all of this together, I don't see any substantial change from just 5 or 10 years ago; the amount of lending is unprecedented and I still feel the capital markets need a bust to tell them where the new limits have been set. Either way, the spread between 5 year, 15 year, and 30 year rates are historically unreal.<BR/><BR/>Again, I think you're at least partially right, but I don't believe that it explains the flat yield curve. Basically, the Fed has added 3% and the capital markets subtracted .5%. That spells disaster for MBS holders in my book. Todd,

True, even so, do you think the flat or inverted yield curve is also a product of efficiencies? Not meant to be antagonistic at all; I don’t think I have heard any thoughts from someone in the mortgage business about risk premiums.

I guess I could see maybe a .5% or .75% at most being shaved off the rates over the past 25 years or so. Capital markets have gotten considerably better mostly because of the global glut of liquidity, however in the light of all of this together, I don’t see any substantial change from just 5 or 10 years ago; the amount of lending is unprecedented and I still feel the capital markets need a bust to tell them where the new limits have been set. Either way, the spread between 5 year, 15 year, and 30 year rates are historically unreal.

Again, I think you’re at least partially right, but I don’t believe that it explains the flat yield curve. Basically, the Fed has added 3% and the capital markets subtracted .5%. That spells disaster for MBS holders in my book.

]]> By: Todd http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-385 Todd Tue, 25 Apr 2006 19:13:00 +0000 http://www.socalbubble.com/2006/04/why-are-mortgage-rates-so-low.html#comment-385 One of the main reasons Interest Rates are lower than they historically should be is due to vast improvements in the efficiencies of Lenders. Risk is better valuated, technoligy has more than halfed the labor involved, and the number of lenders compeeting for borrowers has balooned even more than housing prices.<BR/><BR/>All of this equates to lean mean mortgage machines. One of the main reasons Interest Rates are lower than they historically should be is due to vast improvements in the efficiencies of Lenders. Risk is better valuated, technoligy has more than halfed the labor involved, and the number of lenders compeeting for borrowers has balooned even more than housing prices.

All of this equates to lean mean mortgage machines.

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