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  1. Mortgage Rates Spike on Inflation Fears

    By on June 14, 2011

    Mortgage rates for home purchases and refinances are headed higher today even as a major report of inflation shows no significant increase. Also retail sales the driver of the US economy were lower than last month but not as bad as had been feared.  So what is leading to a rate increase when this type of data might normally produce a drop?

    Simply put–mortgage rates are rising because of future inflation fears that are clearly visible in China.  China reported today inflation that reached the highest levels in three years.  The fear is that inflation will become China’s leading import in the future.

    One additional fear is that China will face a future recession as a result of this rampant inflation and that a major slowdown in China will negatively impact the US economy.  Noted economist Nuriel “Dr. Doom” Roubini stated today that the chances of China’s economy facing a “hard landing” had increased significantly.  Another anlayst, Shaun Rein, Founder of the China Market Research Group wrote an article in which he argues that the inflation in China will soon find it’s way to the US in the form of increased costs of retial goods.  He points out that the increase in Producer Prices for inputs has been substantial, leaving Chinese manufacturers no choice but to pass along these increases.

    As we approach the end of the Federal Reserve’s program of buying US Treasuries (quantitative easing) on June 30 and the date of US debt default in August, the markets will be quite volatile–reacting to every news item or report. Consumers seeking a mortgage would be wise to lock interest rates on loans rather than floating in hopes of a lower rate that may never come, or comes and goes so quickly that it is missed.

    Category: Mortgage Rates

  2. Bad Loans Could Pose Threat To Chinese Economy

    By on August 18, 2010

    Today we have a couple of new reports on the economic situation out of China, which I’ve been attempting to keep tabs on in this space for several months.  To briefly recap, property values in China have exploded over the last couple of years, and many fear that the situation there is becoming economically untenable.

    First, from yesterday’s New York Times, David Barboza reports that there are increasing fears about off-balance sheet loans made by Chinese lenders.  The Chinese Banking Regulatory Commission warned banks to discontinue this practice and ensure there are enough reserves to cover an increase in defaulted loans.  You may recall that a few weeks ago Chinese regulators ordered banks to conduct stress tests to determine the effect a 40 percent decrease in property values might have.  Those kind of price declines could cause widespread problems for the Chinese and the global economy as a whole.

    Continue Reading…

    Category: Mortgage Rates

  3. Chinese Housing Bubble Looms Large as Economy Slows

    2 By on August 11, 2010

    I’ve been writing a lot about the Chinese real estate market, because I think it is interesting, and because I think the situation has some parallels to the way the housing bubble in the United States was created.  If you are totally unfamiliar with the situation, I recommend reading this article by Mike Shedlock at Global Economic Trend Analysis, and then this article by Yongheng Den, Joseph Gyourko, and Jing Wu.  They do a good job of explaining what is going on in China and provide insight into the Chinese housing market.

    Real estate prices in China have doubled over the last decade, with the bulk of the growth coming in the last few years.  As China becomes increasingly industrialized, millions of Chinese peasants have moved from the country into the cities in hopes of attaining prosperity, fueling demand for housing.  Incredibly, land values in Beijing have increased 750 percent since 2007.

    This article from the Wall Street Journal quotes Chinese Minister of Land and Resources Xu Shaoshi as saying: “home transaction volumes have declined and prices have stagnated.  In about a quarter’s time, the property market will probably reach a full correction and prices will fall, but it’s hard to predict the extent of the price [sic] falls”.

    Continue Reading…

    Category: Mortgage Rates

  4. Chinese Banks Prepare For Housing Bubble Burst

    By on August 4, 2010

    I’ve been talking about the potential housing bubble that is growing in China for several months now, because I think it is a very important topic that is not really getting a lot of play in the media.  This is likely because we face so many pressing domestic economic issues right now (unemployment, an ailing housing market, a rash of foreclosures, flagging consumer confidence, etc).  It is also possible that the average consumer of media does not totally understand the implications of a bursting Chinese real estate bubble.

    Continue Reading…

    Category: Mortgage Rates

  5. More Evidence of a Housing Bubble in China

    By on July 29, 2010

    We just bought property behind the Great Wall. On the good side!

    I’ve been talking about the Chinese housing bubble for the last couple of months.  While I am certainly not alone in this, it is a topic that I do not feel has received any where near enough ink in the press.  Today there is a very good article on Vox that was linked to from the Wall Street Journal that discusses the Chinese residential housing bubble in depth.  I highly recommend reading the Vox article.  A recession (or even a slowdown) in China prompted by a collapse of the Chinese real estate market could have dire effects on the worldwide economy.

    A key quote from the Vox article:

    “China is experiencing spectacularly fast growth – so fast that many fear it is driven by a bubble – a propert bubble to be precise.  Recent memories of what happened when the US housing market bubble burst make the possibility of a Chinese housing bubble a critical concern for the world economy.”

    The authors go on to emphasize that there are some difficulties with the lack of data regarding the Chinese market.  Private land ownership was relatively rare until the 1990s, so there is not a lot of old data.  Further, the information that comes out of China is controlled by the Chinese government, so it is possible that we are not getting the full story as to what is going on.

    The Vox authors (Yongheng Deng, a real estate professor at the University of Singapore, Joseph Gyourko, a professor at the University of Pennsylvania, and Jing Wu, a professor at Tsinghua University), go on to say that “available data strongly suggests that prices are quite risky at current levels, and that it would take little more than a modest decline in expected appreciation to engender sharp drops in prices“.

    The authors go on to suggest that price-to-rent ratios in many Chinese cities are reaching a point that suggests prices are becoming unsustainable, and that this is often one of the signs of a burgeoning property bubble.

    The conclusion of the article says that an anticipated moderate slowdown in home price appreciation could lead to a sell-off by Chinese property owners that could spark precipitous price declines.  If this were to happen it could have dire ramifications for the worldwide economy, which has largely been driven by the strength of the Chinese economy for at least a year.

    Category: Mortgage Rates

  6. Chinese Real Estate Bubble Near Bursting Point?

    By on July 21, 2010

    POP!

    Uh-oh, this could be bad.  I mentioned a few months back that there is a property bubble in China that exists on a scale that dwarfs the housing bubble we experienced in this country.  This story has not been too widely disseminated in the mainstream media, possibly because we are in the midst of our own economic issues in the United States, or possibly because the media is somewhat myopic in its choice of coverage, or possibly because data coming out of the People’s Republic is sketchy at best.  In any case, a collapse of the Chinese residential property market would have potentially devastating effects on the global economy, the general availability of credit, and the U.S. economy in particular.

    Today, Mish from Global Economic Trend Analysis has a lengthy post on the Chinese real estate bubble, which I absolutely recommend reading. Within the article, he shows evidence that Chinese property values have been propped up by a massive Ponzi scheme that government officials and real estate developers are complicit in.  According to the article, the typical Beijing home goes for 22 times the average income level, prices which are clearly not sustainable.

    Adding to the evidence that the bubble is about to burst, demand for homes is down substantially this year, often one of the first signs of a bursting bubble.  The article goes on to cite sources that suggest Chinese banks could be left with hundreds of billions of dollars in bad mortgages if/when prices deflate.  Due to the way news out of China is controlled by the government, it may be some time before we get a clearer picture of what exactly is going on with the Chinese housing market.

    One thing that seems evident is that the Chinese economy has largely been sustaining global growth for much of the past year or more.  China is also one of the largest holders of U.S. government debt.  We have seen what the European sovereign debt crisis is doing to worldwide markets.  A serious disruption to China’s economy will pose at least as great a threat to worldwide financial stability, and it is definitely something to be aware of moving forward.

    Category: General

  7. Mortgage Rates Still At 2010 Lows, But Interest Rates Set To Increase in Far East

    By on June 9, 2010

    china-real-estate1

    Mortgage Rates at Total Mortgage Services, LLC continue to sit at their lowest levels of 2010 this morning, despite some international indications from the Far East that interest rates could be on the way up.

    Among today’s mortgage rates at Total Mortgage, the 30-year fixed conventional mortgage rate is unchanged at 4.375 percent, and a 4.583 percent APR. Additionally, the 30-year FHA is coming in at a 4.250 percent rate and 5.178 percent APR, and the 30-year jumbo mortgage rate is at 5.250 percent and a 5.463 percent APR.

    The Wall Street Journal reported today that Taiwan’s central bank has asked lenders to set interest rates on new mortgage loans above 1.5 percent to help cool off the island’s property market. The central bank arrived at the mortgage rate recommendation after factoring in potential risks and costs as they pertain to mortgage lending in Taiwan, said the official in the Journal article.

    And the Global Times is reporting that J.P. Morgan predicted Tuesday that China’s economic growth will reach 10.8 percent this year and the central government will boost interest rates in the third quarter, as part of regular economic practice, as opposed to it being strictly a move to tighten momentary policy.

    When exactly we will see an interest rate increase in the United States remains to be seen, but Ben Bernanke commented Monday night that the Federal Reserve is likely to increase interest rates before unemployment is under control.

    Current mortgage rates are regularly updated on Total Mortgage’s website, while daily mortgage rate and industry insight is available at the Total Mortgage blog.

    At 9:30 a.m. on June 9, 2010, the following mortgage rates are available at Total Mortgage:

    Loan Type Rate APR
    30-Year Fixed Conventional 4.375% 4.583%
    20-Year Fixed Conventional 4.250% 4.535%
    15-Year Fixed Conventional 3.875% 4.236%
    30-Year Fixed FHA 4.250% 5.178%
    30-Year Fixed Jumbo Mortgage 5.250% 5.463%
    15-Year Fixed Jumbo Mortgage 4.000% 4.352%
    5/1 ARM Conforming Mortgage 3.125% 3.547%
    5/1 ARM Jumbo Mortgage 3.500% 3.265%
    1/1 ARM Conforming Mortgage (0 Points) 3.150% 3.922%
    1/1 ARM Jumbo Mortgage (0 Points) 3.150% 3.794%

    For a complete offering of mortgage rates and mortgage products visit TotalMortgage.com for additional information.

    * All rates shown are for 30 day rate locks. Longer locks available. The APR for conventional loan amounts is calculated using a loan amount of $417,000, 2 points, a $495 application fee, $500 loan processing fee, $715 underwriting fee and a $16 flood certification fee. The APR for jumbo loan amounts is calculated using a loan amount of $500,000, two points, a $495 application fee, $500 loan processing fee, $715 underwriting fee and a $16 flood certification fee. The APR for FHA loan amounts is calculated using a loan amount of $295,000, two points, a $495 application fee, $500 loan processing fee, $715 underwriting fee and a $16 flood certification fee. Some rates and fees may vary by state. All interest rates listed are for qualified applicants and are subject to mortgage approval. All rates are subject to change without notice.

    Category: Mortgage Rates

  8. Manufacturing, Construction Expand in April

    By on June 1, 2010

    economic-reportsReports this morning from the Institute for Supply Management (ISM) found that U.S. Manufacturing expanded for the 10th-consecutive month in April.  The ISM’s manufacturing index decreased slightly to 59.7 in April, from 60.4 in March.  This reading was slightly ahead of economists’ expectations.  Any number over 50 indicates that the manufacturing sector is growing.

    To this point manufacturing has been driving the recovery, but there have not been corresponding gains in employment.  The standard measure of unemployment, U-3, is running at 9.9 percent.  The U-6 measure of unemployment, which includes marginally attached workers and involuntary part time workers, is north of 17 percent.  The all-important non-farm payroll report comes out Friday, and economists are predicting that 503,000 jobs were added in April.  Sustained gains in employment are the key to the economic recovery.

    In contrast to the United States, manufacturing in China slowed to 53.9 in April from 55.7 in March.  Although this number still comes in above the expansion threshold of 50, it shows that the Chinese economy, which is hugely important to global growth, may be slowing in the second half of 2010.  China is a major purchaser of worldwide governmental debt, and any slowdown there could negatively effect the rest of the world.

    U.S. construction also increased in April, gaining 2.7 percent over the March numbers, which is the largest one-month gain since August 2000. Curiously, housing construction increased by 4.4 percent in April.  Some of this may be related to the expiring tax credits and the extremely low baseline level of growth, but with the huge amount of surplus housing supply the uptick in residential construction is somewhat surprising.

    Lastly, news out of Europe continues to be bad, as the Euro hit a four-year low against the dollar and European unemployment rose to 10.1 percent, the highest level since the beginning of the Euro.  Debt issues continue to plague Europe and there are serious doubts about the future of the Euro and the Eurozone.  Spain saw its credit rating slashed last Friday on concerns that austerity measures alone will not allow Spain to get its debt under control.

    What do you think about the most recent economic reports?  Let us know in the comments section below.

    Category: Mortgage Rates

  9. Mortgage Rates and the Chinese Real Estate Bubble

    By on May 13, 2010

    china

    If we have learned anything from the European debt crisis, it is this: we are truly in a global economy where seemingly small events around the globe can have dramatic and unexpected effects that ripple across the world.

    Which brings me to the purpose of this post, and examine what effect a change in Chinese monetary policy could have on the U.S. economy, and more specifically, mortgage rates.

    China is on the verge of eclipsing Japan as the second largest economy in the world.  In the first quarter of 2010 the Chinese economy grew at a rate of 11.9 percent.  The Chinese economy has expanded at a double digit rate in twelve of the last seventeen quarters. Even at the depths of the recession the Chinese economic expansion was at least 6 percent.  In 2009, the Chinese government initiated a $600 billion stimulus that further fueled the Chinese economy.  Chinese property prices rose at a record rate last month, and prices on consumer goods climbed at the fastest pace in a year and a half.

    Last year, there was an 80 percent increase in the amount of residential property sold in China.  In 2009, Chinese housing starts increased by 194 percent! Chinese real estate, which has consistently risen in value for decades, has exploded in value over the last few years.  Year-over-year housing prices in Beijing increased by 60% in March 2010.  Most major cities have seen similar increases, and speculation on housing has been rampant.

    However, many people feel the Chinese economy has been growing at a rate that is unsustainable, and some are speculating that Chinese real estate is experiencing a bubble that will burst without some sort of government action.  A housing collapse in China could be disastrous to the world economy.

    The two most obvious actions that the Chinese government could take in response to the overheated economy are to tighten monetary policy, and/or allow the Yuan to appreciate versus the dollar (the Yuan currently has a managed floating exchange and is not allowed to fluctuate freely versus other currencies).

    Here are some possible effects if the Chinese change monetary policy:

    • The spread between Chinese bond yields and U.S. Treasury bond yields  would tighten.  As Chinese bonds become less attractive, demand for U.S. Treasuries could increase.  This increased demand could cause bond yields to dip, which in turn could cause interest rates, and mortgage rates to remain at a low level or even decline.
    • The Chinese economy slows down, which would in turn cause the global recovery to slow.  If recovery in the United States slows down, there will be pressure on the Federal Reserve to delay monetary tightening measures (assuming that inflation does not force their hand).  This would also serve to keep mortgage rates low.
    • If the Chinese allow the Yuan to appreciate, the effects would likely be less pronounced than from monetary tightening.  In addition to other effects, an expensive Yuan would increase the costs of Chinese goods and demand for these goods would drop as a result.  It would also dampen the Chinese economy and reduce Chinese demand for U.S. imports.  U.S. domestic prices would increase, and could in turn cause a bump in U.S. interest rates, which would cause mortgage rates to increase.

    All of this analysis is very speculative, and could change quickly with market conditions, but it will be important to keep one eye on China when evaluating the future of mortgage rates.  What do you think?  Add your comments below.

    Category: Mortgage Rates

  10. Mortgage Rates: What Happened Yesterday?

    By on March 25, 2010

    Mortgage Rates: What Happened Yesterday?
    The mortgage industry witnessed to sharp rises in bond yields yesterday, forcing mortgage lenders to alter pricing on at least two occasions mid-day.     As the bonds rose, Treasury yields reached their highest point since the beginning of the year. Additionally, the 10-year Treasury yield reached its highest level since June 2009. Yesterday’s abrupt rise in bonds could affect mortgage rates for some time.

    So what exactly caused the bond to rise so sharply? Surprisingly, some mortgage analysts believe there was a significant connection between the bond increase and the tension between Google and China. Once Google officially pulled out of China earlier this week, Congressional leaders applauded the company’s decision while criticizing the Chinese government for its history on human rights relating to Internet censorship.

    Meanwhile, China appears poised to increase its control in a dispute with the United States over its command of Western business. Last year, China surpassed the United States in renewable energy investments. Still, what does that have to do with mortgage rates? Well, since China has nearly doubled its revenue over the United States and has become the world’s largest clean-energy product manufacturer, the market may have feared any expanded tension between the two countries could result in a restriction in U.S. investments.

    After yesterday’s dreadful 5-year Treasury auction, bond prices remain up slightly today.     With unemployment figures showing continued improvement this morning, there is hope the bond will once again fall back to earth. Then again, results from the 7-year Treasury auction are expected shortly.

    Robert Hyder

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    Category: Mortgage Rate Trends and Analysis

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