Rates Slide as Economy Weakens
Following a poor performance in the labor market, interest rates fell for the week ending June 9th, 2011. The economy added just 54,000 new jobs in May much less than analysts expected and the unemployment rate increased to 9.1%. The economic recovery is running out of steam and factories cut payrolls for the first time in 7 months. Treasury yields followed suit causing interest rates to decline yet again this week.
Freddie Mac reported that the 30-year fixed mortgage rate fell to 4.49% from 4.55% the prior week. A year ago the 30-year fixed averaged 4.72%. The 15-year fixed rate fell to 3.68% from 3.74% the prior week. A year ago it stood at 4.17%.
Interest rate chart:
The low interest rate environment has been a boon for real estate investors. By locking in long term low rates in an environment with rising rents, cash flows should rise over time. But how long will the low rates last? I’ve been calling for higher rates by the end of the year. Will this hold true? If the economic recovery continues to falter we may see low rates for an extended period of time. Long term rates will rise as the cost of the US borrowing will eventually rise as we have to address the rising US debt.
CoreLogic’s Q1 2011 Negative Equity Report
CoreLogic released its first quarter Negative Equity Report last week. The report states that the number of homes in a negative equity position declined from 11.1 million homes at the end of 2010 to 10.9 million homes at the end of the first quarter, 2011. This represents approximately 22.7% of all homes. Additionally 2.4 million homes had only 5% equity which places them ‘near negative’ due to falling home prices.
Also the report shows the areas with the most negative equity:
In Nevada 63% of mortgaged homes are in a negative equity position followed by Arizona (50%), Florida (46%), Michigan (36%), and California (31%).
With negative equity still a huge problem throughout most of the US, more foreclosures are still on the horizon. What’s worse, recent home price declines put many of those who gained some equity in the past year, back into negative equity positions. People are more likely to default when they have negative equity. Because of this the state of the housing market is still precarious.
Survey, Housing Confidence Up
According to a recent survey by Genworth Financial shows that Americans have some confidence at least in affordability of housing:
- 62% felt that now is a good time to buy a home.
- 82% of the those feeling now was a good time to buy a home said there was a good supply of property and home prices were low.
- 51% the US respondents had a negative outlook on the US economy.
- 48% were concerned about their household finances, 20% were extremely concerned.
- 88% of those concerned about their household finances stated it was due to the rising cost of fuel.
- 46% of Americans were worried about falling home prices
While the survey shows that some optimism exists due to low interest rates, available inventory, and low costs, people are still stressed about the economy and their own finances. That leads to limited purchasing activity. I think this really shows that despite record affordability conditions in housing, people are simply too concerned to purchase a new home.