Buyers won’t rush to beat rising mortgage rates

Commentary: Next week's economic reports could send rates either way

Lou Barnes Contributor

May 31, 2013

Patience image via Shutterstock.

Tough, strange week. On Tuesday the trading and investment world returned from golf and beaches with one thought in mind: Sell bonds.
No new data, no new Fed talk, blow out the 10-year T-note’s February-March 2.05 percent high to 2.15 percent on Tuesday, and 2.19 percent today.
Mortgages are above 4 percent for the first time in more than a year, and for lower-down, middling-credit borrowers, 4.25 percent-plus.
Enough to slow housing? No. Payments versus prices are still far into all-time-low territory.
Will housing heat up as buyers race to beat rising rates? The media loves this concept. A reminder how foolish so much media “analysis.”
In a long working life I’ve never once met a “not-buying” client converted into “buying-now” because rates are rising.

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Years ago, most civilians didn’t know there was a Fed. Today, nearly everyone contemplating the largest financial decision of a lifetime is aware of Fed policy and the current prospect of pulling back its assistance, and newly cautious.

Will housing heat up as buyers race to beat rising rates? The media loves this concept. A reminder how foolish so much media 'analysis.'

For now, at these rate levels, other psychology is dominant: Both home prices and rates look like great deals, and are.
More important — hunch here, more important than all else put together — fear has faded, replaced by tentative optimism.
Home prices are rising in the most desirable markets, but even in the price-flat ones, liquidity has returned. One of the most frightening aspects of the last half-dozen years: “Honey, our Realtor says the place is worth about $300,000, but might not sell.” Just being able to sell is a great relief.
The Conference Board and the University of Michigan each maintain surveys of “consumer confidence.” No one knows for sure what is measured by the confidence questions, but the surveys do tend to track the overall economy. Both have reached Great Recession highs, the bond market selling off at each new pop.
Confidence also seems to track the job market. However — hunch again — I think the housing improvement is the key, and may overstate improvement in the economy, the stock market contributing as well.
Impossible to measure, but evident here on the sidewalk working with clients: A lot of households not hurt by the Great Recession nevertheless headed into bunkers in 2008, bolted shut. Now they are coming out, blinking into the light and releasing deferred consumption of all kinds.
A relaxation of tension of this kind can jump-start an economy into self-sustaining growth. There is no other evident factor that would have offset the “fiscal drag” of the Fiscal Cliff tax increase and sequester. But really, self-sustaining? Here at the end of a pretty good panic in the bond market driven by fear of a Fed exit, because the economy has at last turned the corner.
Or has it? Most current domestic data look ordinary, consistent with a 2 percent growth economy not accelerating. Today’s report of personal income in April: no gain. Zero.
Personal spending fell 0.2 percent, which the loopy optimists said reflected lower gasoline prices — which is good news! Uh-huh. Declining spending is not good news.
The best inflation index available, “core personal consumption expenditure,” excluding food and energy in April was unchanged. Flat. Year over year only a 1.1 percent increase, and tailing.
That’s very good news, and disturbing near-deflation news, and no reason at all for bond yields to spike or the Fed to taper.
Then there is the world around us. Every bit of it slowing.
Japan may be picking up some speed because of the last “banzai!” at the Bank of Japan, but the resulting yen devaluation is beggar-all-neighbors.
China is slowing on purpose and has its own debt problem.
Europe … did you see austerity-demonstrating firefighters in uniform in Spain beaten by police with nightsticks? Nice place, Spain, but those cops look a lot like Franco’s goons in 1936.
The emerging dreams are all sliding, Mexico into a housing bubble-bust, Brazil into reality.
Next week is big: The May report from the Institute for Supply Management on Monday, and May payrolls on Friday. The payroll report alone has the capacity to reverse May mortgages to the threes, or rip to 4.5 percent.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.