Housing Interest and Income.

Housing Interest and Income.

What many ignore in the interest rate aspect when gauging housing affordability. Ergo, measuring the rate increases in mortgages a la decline in purchasing power and increases in mortgage payments, will be compounded by several factors. Overhead costs, such as: property taxes, water, and others will continue to move higher by government necessity until implosion forces them down, somehow.

In order for inflation in “assets” like housing to hold up pricing and push them up there needs to be a wage-inflation spiral, which thus far cannot materialize due to the jobs not being available for people. Not even mentioning the increases in salaries for those already working.

If during the course of this year 2017 we get to 5% to 6% rates for mortgages housing prices should get some reality into them. Ahem. Historically those are reasonable rates but check for yourself https://fred.stlouisfed.org/series/MORTG.

Another factor most people ignore is the slow exit of Freddie and Fannie will eventually occur. By this I mean the taxpayer will one way or another curtail exposure in both entities. Both FHFA and GAO will slowly push for reduction of possible exposure to the entities. Securitization of debts produced and sent to Freddie and Fannie will decline, while debts issued by them should decline as well. Ergo, banks and others will have to hold more on their books by virtue of not being able to sell and keep servicing thus churning loans and refinancing. Refinancing is essentially imploding since those whom could, already did, and rates already moved up significantly to lock everyone in their place.

Two more interesting aspects most people ignore. The massive amount of private investment capital that went into single family residential and general public housing that is going to be locked in until they decide to exit, which usually precipitate a stampede out. Considerable inventory that was most likely hidden by refinancing that was solvent until rates moved up, but won’t be once payments need to come from real earnings instead of appreciating re-financing to pay for their carrying costs.

Be well dear reader.

http://gao.gov/products/GAO-17-92

https://www.fhfa.gov/Conservatorship

https://mishtalk.com/2017/01/04/refinance-window-closing-fast/