Several serious hints about mortgage rates rising from Goldman and the Fed, bank capital ratios, HUD head Carson already baffled and more…
Goldman Sachs analysts said on Friday they expected U.S. 30-year conventional mortgage rates to rise 150 basis points to about 5.5 percent by 2019, in step with an increase in benchmark Treasury yields and investors demanding higher compensation to own mortgage-backed securities.
While 2019 might seem like it is far away, it will be here before you know it. We have heard mortgage rates are going to increase for the past several years but we could finally see it happen
In a scathing editorial published in the Wall Street Journal today, the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, blasted US banks, saying that they still lacked sufficient capital to withstand a major crisis.
Kashkari makes a great analogy.
When you’re applying for a mortgage or business loan, sensible banks are supposed to demand a 20% down payment from their borrowers.
If you want to buy a $500,000 home, a conservative bank will loan creditworthy borrowers $400,000. The borrower must be able to scratch together a $100,000 down payment.
But when banks make investments and buy assets, they aren’t required to do the same thing.
But some will claim requiring that common sense be applied to laws and regulations for the banks and Wall Street is hampering economic growth. And then the chorus of lemmings will repeat this over and over…
You can repeat the same lie a 1000 times but it never becomes any more true.
After increasing and leveling off in recent years, new single-family home size continued along a general trend of decreasing size during the fourth quarter of 2016. This ongoing change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, including growth for townhouses, typical new home size is expected to decline.
According to fourth quarter 2016 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was slightly higher at 2,453 square feet. Average (mean) square footage for new single-family homes increased to 2,661 square feet.
Remember that a bigger home means higher heating, cooling and maintenance costs. As well as more to clean.
On the other hand, too little space can be quite stressful.
The Conference Board Leading Economic Index for the U.S. increased 0.6 percent in January, following a 0.5 percent increase in December, and a 0.2 percent increase in November.
Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board said:
The U.S. Leading Economic Index increased sharply again in January, pointing to a positive economic outlook in the first half of this year. The January gain was broad based among the leading indicators. If this trend continues, the U.S. economy may even accelerate in the near term.
I like what Ataman said despite IF being the biggest 2 letter word in existence!
The fear of what Fed Chair Janet Yellen on Tuesday – and other Fed governors earlier – called “waiting too long” before raising interest rates is increasingly inserting itself into Fed pronouncements. One of the aspects – and this is getting articulated with increasing intensity – is commercial real estate (CRE) and its impact on banks whose nearly $2 trillion in CRE loans are backed by collateral whose boom-prices are known to crash periodically in phenomenal busts.
In its February report two years ago, the Fed first pointed at “valuation pressures” in CRE. And warnings about CRE have appeared since then in every report, twice a year, with growing sharpness, including in the report issued in June 2016, which warned that “valuations in the CRE sector appear increasingly vulnerable to negative shocks….”
Scary stuff but I prefer to not live in fear. Being informed and planning accordingly seems a better option to me…
Dr. Ben Carson was “baffled” and “speechless” that one of his most loyal aides was walked out of the Housing and Urban Development after an op-ed resurfaced in which the aide criticized then-candidate Donald Trump, a source close to Carson said.
Carson, who is expected to be confirmed as HUD secretary by the Senate, had no knowledge that Shermichael Singleton was going to be escorted out of the building Wednesday until after it happened. The ordeal was first reported Thursday by the New York Times.
While Carson was surprised, was Singleton? How did Singleton think Trump would react? I probably would have done the same thing if I were in Trump’s shoes.
All I can say is you don’t bite the hand that feeds you (even if that hand is really really small).
One of the outcomes of the 2008 financial crisis was recognizing the cascading effects that the severe financial stress or failure of a large institution can have on financial markets and the economy at large. A primary goal, therefore, of post-crisis financial reform was heightened supervision and regulation of those institutions whose sheer size or risk-taking posed the greatest threat to financial stability.
These reforms were primarily codified in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Under the Dodd-Frank Act, financial institutions with $50 billion or more in assets are subject to enhanced prudential regulatory standards.
The answer is clearly “yes,” as shown in the figure below.
Some in the industry and in Washington, D.C., are calling for a re-evaluation of the Dodd-Frank Act provisions. While modifications for smaller, non-systemic firms would be welcomed by many, the damage from the financial crisis makes it sensible to continue strong expectations for the largest firms.
I think this is yet another great place for common sense to be applied…
Federal Reserve Bank of Cleveland President Loretta Mester said she would be “comfortable” with the central bank raising interest rates now as inflation pressures pick up.
While the Fed isn’t “behind the curve” on interest rates yet, delaying policy tightening will create risks, Mester said in reply to questions after a speech delivered in Singapore on Monday.
“I’d be comfortable with an increase in the Funds rate at this point, if the economy keeps going the way it’s going,” she said. “My outlook builds in a gradual increase in the Funds rate over time. And I’m comfortable with that.”
As I have said before, the Fed does NOT set mortgage rates BUT raising their benchmark rate could cause mortgage rates to rise. Anyone remember the “Taper Tantrum”?
Again, be informed and plan accordingly. If someone is planning to buy a home, they should combine this tidbit with what Goldman Sucks said above.
We could see the end of the historically low mortgage rates we have enjoyed for the past several years.
Well that’s it for today! I plan on posting the latest Weekly Market Report later tonight so check back tomorrow or even better subscribe!