So, mortgages are more affordable because interest rates are low, right? Pick your chart provider and timespan of choice, but it is a well worn argument in favour of higher house prices: afford bigger mortgage, buy
bigger more expensive house.
Not so fast. There is a case to be made that basing the analysis on the size of the initial payment is a form of mass delusion.
You see, the logic of affordability has its roots in the 1970s, but it is the reverse effect of something most people will have to fish out of the intellectual dustbin where the Taylor Rule and other inflation related analysis now molder: money illusion. Read more
Spotted in the realm of US mortgages — an increase in rates. Read more
This pretty much speaks for itself — from Freddie Mac, with thanks to Calculated Risk for the pointer:
Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage rate fell again to break the survey’s all-time low; the 30-year FRM has been under 5 percent for 23 weeks in a row. The last time 30-year FRM rates were this low was April 1951 (based on a data series of FHA rates going back to 1948). The 5-year ARM tied the all-time survey low set last week. Read more
Not that the Fed has ever been a model of clarity and decisiveness, but the announcement in August that it would re-invest proceeds from its MBS holdings into long-dated Treasuries left open a few questions:
What is the magnitude of the future MBS paydowns? What are the Fed’s objectives with respect to its SOMA (System Open Market Account) portfolio and what are the benefits and drawbacks of purchasing either Treasuries or MBS? How do these objectives fit in with the newly emerging, more stringent capital regime for banks? Can the Fed lower mortgage rates? Does it want to? Largely, these questions reflect the uncertainty about the efficacy of the transmission mechanism for monetary policy: can the Fed really do anything to stimulate an economy and financial system that are aggressively deleveraging? Read more