Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Is the Air Coming Out of Housing Bubble 2.0?

  by    0   0

Peter Schiff put it pretty bluntly in a podcast last week. We don’t have a booming economy. We have bubbles. And it looks like the air is starting to come out of some of those bubbles. We see signs of trouble, particularly in interest rate-sensitive sectors such as real estate. As just one example, home sales in California have hit the lowest level in a decade. And it’s not just California. We’re seeing declines in many of the “most splendid housing bubbles” in America. Even more troubling is that we’re seeing these tremors and interest rates aren’t historically high.

Yet.

But they are rising quickly. According to an article in Wolf Street, they may soon hit 6% and that could be the real tipping point.

Mortgage rates have eclipsed the 5% level. According to the Mortgage Bankers Association, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) and a 20% down-payment rose to 5.17% for the latest reporting week. That marks the highest rate since September 2009.

The next stop is 6%. As Wolf Street notes, that was the mortgage rate in December 2008.

Of course, rising rates are by design. The Federal Reserve has nudged the rate upward, and it is also shedding Treasuries and mortgage-backed securities. Here’s the impact we’ve seen since the beginning of the year, according to Wolf Street.

  • The 30-year mortgage interest rate has risen 95 basis points, or nearly 1 percentage point (from 4.22% to 5.17%).
  • The 10-year Treasury yield has risen 71 basis points (from 2.46% to 3.17%)
  • The spread between the two has widened from 176 basis points on at the beginning of January to 200 basis points now.

In other words, mortgage rates are climbing faster than the 10-year Treasury yield, now that the Fed has begun the shed mortgage-backed securities. This is expected. It’s part of the QE unwind – it’s part of the Fed exiting the mortgage market and pulling its support out from under it.”

Keep in mind, 6% is still historically low.

Here’s another disturbing piece of the puzzle. Home prices have risen precipitously and have eclipsed levels seen just prior to the housing bust. Average home prices nationwide have surged 11.5% above the crazy peak of housing bubble number one. In a nutshell, we’re looking at housing bubble 2.0.

As Wolf Street notes, even at relatively modest 5% mortgage rates, we’re seeing an impact on the housing market with significant pressure building on the margin, “with some potential buyers being locked out and others scared off as they’re finding today’s inflated home prices don’t mix well with even slighter higher mortgage rates: What was barely affordable for them, with a good amount of stretching, has become unaffordable.”

Wolf Street predicts the real pain will kick in as the mortgage rate approaches 6%. And that is likely less than a year away at the current rate.

Six percent will block enough potential buyers from buying at current prices to where sellers will have serious trouble selling their homes unless prices drop enough. The cure for this market will be lower prices – even if it means rising defaults and considerable problems among mortgage lenders, particularly the non-bank lenders (the “shadow banks”) that have very aggressively moved into the mortgage market over the last few years. Quicken Loans has now become the largest mortgage lender in the US, ahead of Wells Fargo. These shadow banks are less regulated and have taken more risks than the banks. The Fed is already worried about them but worrying is all it can do since it doesn’t regulate them.”

This is just one sector of the economy, but it’s indicative of what’s going on more broadly. While the mainstream touts the “economic boom,” there is underlying rot that rising rates are about to expose. As Peter said, the housing market is a leading indicator of the impact of rising interest rates.

If the US economy is really going to stay strong and if interest rates are going to keep rising, how is it possible that the economy can continue to stay strong with high interest rates when the economy, or the strength of the economy, is predicated on debt?”

TaxFreeGold.Banner.1000x285

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Here’s One Reason Gold Is Money

Gold is money. Gold has been money for thousands of years. And one of the reasons gold is money is because it’s immutable. Related

READ MORE →

Peter Schiff: The Real National Emergency Isn’t At the Border – It’s the Debt

a bomb with US DEBT written on it and a hand lighting the fuseOn Friday. Pres. Trump declared a national emergency. Based on that declaration, the president will reallocate $6.5 billion from other government programs to fund a border wall. In his podcast on Friday, Peter Schiff said there is indeed a national emergency, but it has nothing to do with the border. Of course, the real national emergency […]

READ MORE →

Peter Schiff: Who’s Going to Pay for the Green New Deal? Because You Can’t Print Wealth

In his most recent podcast, Peter Schiff dug into the politics behind the Green New Deal and specifically asked a key question: who is going to pay for all this? Related

READ MORE →

A Record Number of Americans Are Delinquent on Their Car Payments

a check engine light is onA record number of Americans have fallen behind on their car payments. On Tuesday, the New York Federal Reserve released its Household Debt and Credit report covering the fourth quarter of 2018. Not only has indebtedness hit record highs, eclipsing levels seen on the eve of the Great Recession, but Americans are also having a […]

READ MORE →

US Household Debt Breaks Another Record

The national debt has pushed above the $22 trillion mark, but it’s not just Uncle Sam borrowing himself into oblivion. US household debt climbed to a record $13.54 trillion in the fourth quarter of 2018, according to a report released by the Federal Reserve Bank of New York. Total household debt (including mortgages) now stands $869 billion […]

READ MORE →

Comments are closed.

Call Now