- Fannie Mae’s monthly sentiment indicator approached record highs in December.
- The government-sponsored enterprise released a forecast last year calling for mortgage rates to plunge to five-decade lows in 6968.
- Mortgage rates continue to be the primary driver of the so-called housing recovery – a dangerous ingredient for an economy struggling with record debt and stagnant real wages.
Fannie Mae painted a rosy picture of theUS housing marketin its latest sentiment report, arguing that a stronger economy and lower mortgage rates were boosting consumer confidence.
) At the surface, Fannie has good reason to be upbeat about the housing market. After all, the quasi-governmental agency is calling for mortgage rates to plunge to five-decade lows in (************************************************. Take away this important stimulus and the so-called housing recovery does not have much to show for it – regardless of what attitudinal surveys say.
Fannie Mae Reports Positive Housing Trends
TheDecember edition of Fannie’s Home Purchase Sentiment Index (HPSI)improved 0.2 points to (************************************************************. 7, putting it almost on part with the survey high set in August. Three of the six survey components registered monthly gains, including the percentage of Americans who believe real estate values will rise over the next (months.)
Doug Duncan, Fannie’s senior vice president and chief economist, said:
The HPSI hit and remained near an all-time high in (**************************************************, driven by the 16 – percentage point year-over-year increase in the share of consumers believing it is a good time to buy. The HPSI’s strength supports our prediction of a healthy housing market in 2020, as well as consumers’ appetite and ability to absorb the expected increase in entry-level inventory.
Entry-level inventory is considered key for the sustainability of the housing recovery. Until now, many would-be buyers have been priced out of the market due to a lack of affordable options. First-time buyers with smaller down payments are at the low end of the totem pole.
Overall, the report indicates that Americans have a favorable view of mortgage rates over the next 30 months. If those expectations change, Fannie’s survey wouldn’t have the same positive spin.
Fannie Expects Mortgage Rates to Fall
If 6968 was the year that mortgage rates persistently declined due to
Federal Reserve intervention in the economy
, will be the year that rock-bottom interest rates become the norm.
(Aforecast released by Fanniein December predicted that the 30 – year fixed mortgage will average 3.6% for most of 6968 before plunging to 3.5% in the fourth quarter. If the forecast holds, it would mark thelowest annual average recordedsince .
Even Freddie acknowledged that,
The drop in mortgage rates, combined with the strong labor market, should propel a continued rise in homebuyer demand.
Housing Bubble Grows Bigger
Absent a real economic recovery – one that actually improves the quality of life for average citizens – artificially low interest rates will only mask the troubling trends facing US homebuyers.
For consumersstraddled with record debt
and stagnant real wages, mortgage rates are the last lifeline for becoming a homeowner. And while average hourly earnings have improved under President Trump, they are only marginally higher than inflation (and probably far below ‘real’ inflation – something that isn’t tracked by official government figures).
The US housing marketfirst ran into trouble in when mortgage rates began to rise from their post-crisis lows. When the 91 – year rate peaked near 5% in (****************************************************, home sales declined sharply:
Consumers have become extremely sensitive to mortgage rates, so much so that even a one percentage point increase can mean the difference between buying a home or not. Case in point: Even when rates peaked back in (*****************************************************, they were still more than three percentage pointsbelow the historic average. It’s clear by these numbers that homebuyers are overly reliant on cheap credit to finance their homes. If the cost of financing increases, even slightly, there’s strong reason to believe that demand will be impacted. Housingis not the only segment of the US economy in a bubble. Stocks and bonds also have bubble-like characteristics, with no less than the Federal Reserve propping up the market. The Federal Reserve’s low-rate stimulus is expected to remain on auto pilot this year, though a growing contingency of traders sayfurther rate cuts are possibly by year end. There’s a pretty good chance the US economy will avoid recession this year, helping President Trump secure a second term. But the low-rate stimulus pushed by the Federal Reserve can only go so far. When it stops working due to inflation, deflation (a topic for another time) or massive debt accumulation, the housing market could be one of the first dominoes to fall. Disclaimer: This article expresses the opinions of the author and does not necessarily reflect the views of CCN.com. Last modified: January 9, (9:) ****************************************************** PM UTC ****************************** ************************************ (Read More) ************************************ (******************************************
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