‘Old-School’ Wild-Card Housing Threat Coming Into Play

Posted on June 18th, 2008 in Mr Mortgage's Personal Opinions/Research

Affordability is a moving target with many parts, which many forget about when offering up housing forecasts. One, which has come into play recently and very swiftly, has the power to throw the housing market another, long-lasting and punishing blow.


We already know that housing prices are being pummeled due to massive REO supply entering the market, priced far below recent comparable sales. I have done numerous reports on it. The following is the latest. Record-Breaking May Foreclosure Report


We also know that when all of the ‘exotic/affordable’ loan programs went away literally overnight, housing took a sharp downturn with the CA median home price losing 27% since Sept 2007. Going to a 30-year fixed, fully documented mortgage environment overnight, has taken its toll on prices. The following is the latest piece I did on this topic. CA Housing stats, The Real Story…4.25-years Supply?!?


Now bond yields and mortgage rates are soaring, which is an affordability wild-card housing prices can’t handle. Most analysts and economists make their housing predictions based upon an average 30-year fixed rate over many years or the present rates, both of which are historically low and have been since 2003 (see chart below). Turning around this trade, with inflation levels that make owning Treasuries a money-losing proposition and rate overseas leading the way, maybe next to impossible. Rates are going up and arguably have been far too low for far too long.


In the past month, rates on a 30-yr fixed mortgage at no points have soared from 6% to 6.75%. When rates rise, affordability falls. Every .25% increase in mortgage rates takes away approximately 2.5% in purchasing power. Therefore, roughly 7.5% of purchasing power has evaporated in the past month. This, of course, varies from individual to individual, but assumes a household with a steady income buying at the maximum allowable debt-to-income ratios, which is typical.


People are focusing so much on the loss of loan programs and tightening of guidelines and have completely forgotten about one of the most basic of housing affordability factors, mortgage rates. This is, unless they plan to pay cash.


If rates climb back to levels last seen in 2000 and 2001 (7.5% to 8.5%), an additional 7.5%-12.5% purchasing power could evaporate.  In the past, mortgage rates were a leading indicator for home prices and the health of the housing market in general. Now, that the days of free money and ‘heartbeat loans’ are over, ‘old-school’ factors like employment, income levels, interest rates, consumer sentiment and the health of the broader economy will have a significant influence once again.


Average 30-yr Rates at No Points

Today’s Rate 6.750%

YTD 2008 6.375%

2007 6.750%

2006 6.750%

2005 6.250%

2004 6.250%

2003 6.250%

2002 7.000%


45 Responses to “‘Old-School’ Wild-Card Housing Threat Coming Into Play”

  1. At least the 30 conforming year rates are getting closer to the “con-Jumbos”…and lets not forget about those true jumbo loans over $729,500 here in beautiful Socal. Want a 30 year fixed with no points? It’s not even on the sheet at Wells, Suntrust, or Citi. A 1 point buy down could probably get you 8.5% today…if you were dealing with a decent LO not out trying to make his last $20k. That’s a $7700 a month payment on a million dollar loan. Figure about $240k in household gross adjusted income to qually…unless you have some of that ever popular consumer debt. The line forms to the right. No cutting now.

  2. From one extreme to another one.
    Never fails. Crazy bankers.

  3. So what we have here is a truly diabolical PLAN to facilitate a COMPLETE COLLAPSE of not just Housing but the American (and Global) economy (see RBS forecast of a Depression – finally). Why did it take so long to report what was inevitable several years ago? Were practically all mainstream economists DUMMIES for the last several years until NOW, when the future is just about self-evident?! Why were the Austrian School economists reviled or ignored for so long? Do they expect us to believe that the world’s mainstream economists lived in a cuckoo’s nest? No way, Jose! They were told not to bite the (Hidden) Hand that feeds them – or else no more cushy job playing with numbers. The Emperor (and Sir Alan, et al) having been running around stark naked for years! Yeah, I know that’s disgusting. :O

  4. Mr Mortgage:

    If the REO inventory in the banks (particularly CA, FL, NV) are not counted in reports such as Housing Stock growth, or other measures of available homes for sale, WHAT is the way to most accurately describe / quantify the supply of HOUSES in places like CA, FL, and NV? Banks REO inventory is hidden but is there a report that fully encompasses their # so it could be added to the GRAND TOTAL of supply?

    Any input is great, I know you have done a video on this, but may be if you could boil it down to very specific ideas this time I’d be very grateful. Thanks again!!!

  5. Collapsing cereal boxes.

    Kellogg shrinks cereal boxes, not prices
    From the Associated Press
    June 18, 2008

    GRAND RAPIDS, MICH. — It’s a little less cereal for the same amount of money.

    Kellogg Co. is using smaller packaging while charging the same prices for five brands of its cereals sold in the United States, effectively raising their prices for the second time this year. The company started shipping the new boxes to stores this month.

    Boxes were reduced by an average of 2.4 ounces for 14 items sold under the Apple Jacks, Cocoa Krispies, Corn Pops, Froot Loops and Honey Smacks brands, Kellogg spokeswoman Susanne Norwitz said.


  6. I think cash is about to become King again, and the pretending lightweights without any, will be regulated back to the “Old-School” method of obtaining it.

    Note to Eternal Optimist. There is no God Damned conspiracy by the neocons or Zionist to “facilitate a COMPLETE COLLAPSE” in the world economy! The Gov’t is desperately doing everything they possibly can to prevent a “COMPLETE COLLAPSE”. If what you are saying were true, the Fed would have never backstopped the Bear Stearns deal … and NO, they didn’t backstop that deal for “the Jews”. They did it to bolster confidence … nothing more, nothing less.

    Google Executive Order 12631 … read it, and understand it.

  7. This is a great opportunity to eliminate junk foods from the American diet. If Americans eliminate junk foods from their food budget, they and their kids will be healthier and won’t need medical insurance. Invest in bananas and frijoles futures! Pharmas making appetite-reducing pills may also be a good play. How about food additives that will slow down the digestive process by a few days – and we’ll only have to eat once every 2 days or so?! And we won’t need as much TP and napkins, either, and save lotsa trees. The Greens should love it! 🙂 With some old-fashioned American ingenuity, we can turn these lemons into lemonade! 😉

  8. Marc, when everyone believs China will be the ultimate power, I do understand that there is a huge concern for China in the future, that will be, starting from 2015, Chinese population will head south, while in the meantime, US population will keep rise.

    The greatest concern for me is if and how President Obama will really benefit US citizens, according to what he performed, I am very upset.

    Maybe a lot of retarded Americans will only realize their stupidity of abandoning Mr. Ron Paul after four dismal years.

  9. I know that there are a lot of problems in the banking world, and certainly a lot with politics in our country and our world. Now I’m no genius, I’ll admit that. I am a hard working guy that takes pride in taking care of my clients and my family, which now includes 2 daughters less than 2 weeks old. I have been fortunate to have earned a great living these past 10 years or so, while doing right by every client. It’s how I sleep so well at night. I’ve also been smart enough to save enough of those earnings to get through tough times like this. I don’t have many solutions to what ails our industry and our country. I am certain however, that divisiveness and anti-semitism are not the answer. For the record, I am polish and was raised a catholic, but currently don’t practice any religion. Please continue to enjoy your right to free speech. Many WASPS, Catholics, Hispanics, Blacks, and even Jews have died over the years so you can anonomously type whatever you want.

  10. Another tactic to close off debate is to say the critic of boom/bust cycles that are possibly engineered from the available commonsense evidence…is crazy or insane thus invalidating the person AND the argument. Malignant narcissists use the tactic of invalidation and namecalling to control and silence the people around them.

  11. MBIA and Ambac will be handling a nice present to the markets in a couple of weeks; their bankruptcy. Nice. A default on 400 billion on derivatives. And there are all still imbeciles believing in the integrity, soundness and solidity of markets. Yeah get real. The system is busted. And now the right wing coucous and crazies in Israel want to bomb Iran. Great !

    Everything is imploding à 140$. I am sure it will be just fine when oil reaches 350$ ? Paper will be worthless. I think that Royal Bank of Scotland had these geo-political factors in mind when they recommended shorting the market. Boom!

    Nigerian rebels bombed the installations of Shell this morning june 19th. 200,000 barrels of supply kaput for many months. Now imagine Iran. Happy Hanuka to you all and Merry Christmas. Gold, Silver, Oil, Grains, Puts and Shorts.

  12. Chinese stock market down another 6.54%, LORD!

  13. fuching aces guys, keep this R rated at least.

  14. Have you noticed ? Manufacturing is crashing even with a cheap dollar. This is really troubling.In my books of classical FED economy, It’s not supposed to happen.

    The Philadelphia manufacturing index is scary; down 17 points. It means just one thing. What is gained with an ultra cheap dollar, is automaticcally destroyed by exploding inflation and destruction of purchasing power by the middle class.

    Slaughthering of the middle class to protect the Wall Street buddies. It’s not working for the ordinary american because your politicians couldn’t care less about the middle class. The Bernanké put is only reserved to JP Morgan and company.

    Stay away from consumer stocks too.

  15. Thanks Donny, and all who are sick of eternal o’s baloney. I love this site for what it provides, information regarding the housing market, and economy in general, Mr. M is awesome, and brings us all some very useful and insightful information, as well as everyone who posts, to share and maybe vent a bit. I love a mature debate, and the exchange of ideas as much as the next guy, but when it is cheapened by the likes of eternal o with hate speach and nothing more, it disgusts me. Mr. Eternal, if you have something to add regarding the main purpose of this site, go for it, but dude if you are looking to spread hate, or find converts, just go away. My husband lost many friends on sept. 11, and some of them were actually of a religion other than yours, we have enough hate in this world, no one wants to listen to any more of it, from you. You insult the process, as well as the work that goes into it. This crap has been pissing me off for awhile, thanks again all 🙂

  16. More asshatery from Citi.

    Citigroup likely to take “substantial” Q2 subprime markdowns

    By Greg Morcroft
    Last update: 11:35 a.m. EDT June 19, 2008

    NEW YORK (MarketWatch) — Citigroup Inc’s chief financial officer Gary Crittenden said Thursday that, “if current trends prevail, it is fair to conclude we will continue to have substantial additional marks on our subprime exposure this quarter.”

  17. PS to evil-A: As far as disrupting your cozy little tete-a-tete here – IT NEEDS TO BE DISRUPTED! – but all things will pass, including my presence here 🙂 Be patient and just ignore what I write)! Others may be listening in. 😉

  18. PS This is the Mike Morgan I mentioned earlier:


  19. I see two bear fund managers got arrested today by the FBI – yeow.

  20. What does this mean for prices? Would prices have to also drop for homes to remain “somewhat” affordable? I’ve been saving up to buy my first home but have held off for now, but with increasing interest rates, would this mean that if rates go up by 1-2%, will I only be able to afford a less expensive home than I would have been able to afford today? This site is GREAT. Thank you!

  21. did you just catch that idiot, Ara hovnanian on CNBS. What a dope…’mortgage financing is not the problem’. BULLSHIT. he wants a massive bailout. Go BK. I am tired of this guy for a year and a half lying, using CNBS as a platform. I am going to short his stock right now just for spite. I am not even going to chart it first.

  22. LOL, mr. m – just caught that – yeah, the problem is “psycology” – every thing else is fine – right!

  23. opps, I mean psychology. 🙂

  24. First, to stay on topic, I fear home prices will become affordable to me at about the time mortgage rates will increase enough to diminish any gain I might have had by waiting for the carnage to subside before jumping into the home ownership pool. I dig Mr. Mortgage, thanks for the inside scoop.

    Second, what a gem of a thread! There is a lot of stupidity on the internet, but rarely does somebody communicate their stance as directly as a certain poster on this thread.

    I’m inspired to create a website that might analyze the text of a post and produce some meaningful questions that could be asked of the poster. Before today I would have thought this impossible due to the limited amount of communication in a single post, but seeing the poster in action I realize it is possible:

    1) Frequent use of broad generalizations (“all”, “everybody”, “just another”)
    2) High frequency use of labels (enough said)
    3) Alternate descriptive names not widely recognized.
    4) References to external sources deemed highly suspect.
    5) General references without any quoted matter.
    6) High frequency use of exclamation marks, question marks.
    7) Exaggerated analogies.

    I feel like I could run off and create a program to analyze such talk so that any reader could cut and paste any post into my website and get a reading based on the words chosen by the post author.

  25. This is what makes it slightly tough on deciding to buy. Rates can’t rise just by a little in the fall….they’re going to go through the roof. The underlying inflationary pressures are just too heavy (and, if anyone believes 4%ish inflation numbers, I’ve got a bridge I’d like to sell you..the basket of goods is simply silly at this point).

    I think rates could go up to 10% within 2 years….and that makes for some damn expensive mortgage payments. It’ll prolong the bottom of this rather steep decline (I think it’ll keep plummeting over the summer and possibly into the winter before becoming a slower decline if not flat for YEARS…think of getting the early 90s AFTER we see 40-50% off peak). Of course, I’m not hardly an expert, that’s just my sense of it.

  26. ETERNALANALYST – you forgot

    8) 20-years in a sector of which I forgot more than 99.9% of people know.

    When others were sitting in classrooms studying English and creative writing, I was on the street helping shape the mortgage industry until the investment banks came in and fuched it all up.

  27. As mortgage rates go up (if the continue that is), then the real estate market prices would have to adjust downward as well as the Stock Market.

    I don’t think the Fed is going to let it happen! They are out to protect their buddies! We regular folk will pay through our noses inflated prices……then once the savings is gone (your savings) then and only then will rates go up! Once again helping their buddies.

    This big mess is the slowest trainwreck I every did see….slow… slow ….slow. Like watching a pot boil only to realize the burner wasn’t on.

  28. PPS to EternalAnal_yst: You forgot to mention my dashes! – dashing, eh?!!! (2 bonus exclamation marks just for you! – ooops, another 1 😉 And how about those smilies?…Egads! 🙂

  29. PPS to EternalAnal_yst:

    By the time you write that program, I’ll be long gone! Why not throw caution (and the program) to the wind and use your head (for once)? Come on, you can do it! Just 1 tiny little legitimate question! Stop eternally anal_yzing and JUST DO IT!

  30. Hey, NO MORE OFF TOPIC CRAP. What the F is going on today.

  31. Disgusted Reader:

    This is just for you:

    1. Get your cash out of the banks!
    2. Get your gold coins out of the Safety Deposit Box and put them in a Safe under your bed!
    3. Check the market value of your house! If your mortgage is ‘upside down’, give the keys to the bank!
    4. Don’t quit your job, no matter what!
    5. Don’t take out any more equity loans!
    6. Use Mass Transit instead of your car whenever possible!
    7. If you can find a buyer for your house, sell it and rent!
    8. Move as close to your job as possible!
    9. Pay cash for everything, if possible!
    10. Keep 1 credit card for emergencies only!

    If you somehow survive the coming financial disaster, teach your family this slogan for possible future use: NEVER AGAIN!

    Bon voyage!

  32. “Malignant narcissists use the tactic of … namecalling.”

    Pot, meet kettle.

    A benign narcissist

  33. Hey, Doubting Thomas – stay ‘on topic’! (it’s OK to call Sir Alan and Whirly Ben any nasty name you can think of – the nastier, the better!)

  34. PS to Doubting Thomas:

    Is ‘Malignant Narcissist’ a name?

  35. thanks disgusted reader, you are right, this ain’t the only game in town.

  36. There’s a simple solution folks…don’t feed the troll.

  37. Circling the Drain:

    You have passed the Event Horizon! Good Luck!

  38. This may not be the only game in town – but Mr. Mortgage has a wonderful crystal ball! 🙂 I am reminded of ‘Karnak – the Magnificent’ (Johnny Carson A&Q skit)

  39. “Have you noticed ? Manufacturing is crashing even with a cheap dollar. This is really troubling.In my books of classical FED economy, It’s not supposed to happen.”

    In my book it happens when everything we buy is manufactured outside of the U.S.

  40. Has anyone seen any of my memorable comments which seem to have simply vanished, like Sir Alan? – BUT – which have been indelibly stamped into the minds of all who read them! – to be resurrected at the appropriate time!

    Mr. Mortgage – you MUST learn to resist the pressure of poster opinion. After all, Truth is harder to find these days than hen’s teeth! (or an up-to-date Subprime mortgage!)

    You will be happy to learn that I have just been assigned to another “Mission: Impossible!” May the Grace of God be with you all (even Donny and evil-A, who will now rejoice in celebratory song: “Hava Nagila”).

    “There will be gnashing of teeth.”

    Make sure they’re not YOUR teeth! Click on my name for hints on how to do that! 🙂

  41. Sir Alan was damn good for the arm’s business in Great Britain this year. That’s why zeeee Queenny made him Sir. Record export by the UK in the Middle-East this year. Even the US was left behind for orders. The Tony “Blaere” dividend is paying off. That is to say for the arms dealers, not for the ordinary brit or for the ordinary american, things are just FANTASTIC ! Arms business is booming even if the rest of us is going down the drain. I smell a whiff of coming Third World War in the air. And yes it will be about OIL. Nothing very new under the sun. Not good for banks, for inflation and for the middle class.

  42. Ooops……..I almost forgot:


  43. PPS If you think your silver hoard is safe, you can forget it. Silver confiscation will be next – possibly at the same time!

  44. Vietnam has just made illegal the importation of gold. Be very worried about your politicians. These people in the name of the people, will do anything. They will just declare that your silver is speculation, and Lieberman, that ENRON puppet, will declare you a criminal. Strange. They never declare you a criminal when you speculate on a crappie internet stock and a worthless piece of CDO paper. Lierberman from Connecticut had nice friends at ENRON. And the people reelected that bum, almost as the same as the communists in Vietnam.

  45. That whining Zionist slimeball Joseph Lieberman, who has ‘loyalties that are greater than my party’ (Israel) is enough to make anyone vomit. He changes political parties like the rest of us change our socks! Yup, all those escape artists, trying to escape Financial Armageddon by buying hoards of gold and silver are gonna be hung out to dry when the Fed confiscates all precious metals. What else could they do? It worked once before, so why not again?

    Caveat Emptor!

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