I Wouldn't Get Excited About Lower 10 Year Yields
The yield on the 10 year note has been back under the 5% range for about a week now. A few real estate bulls here and elsewhere are encouraged by the drop in yields and seem to think that the decline will encourage more home buying again as mortgage rates, which are often pegged to the 10 year yield, also trend lower.
Unfortuneately, the lower yield on the long bond is a signal that the market expects economic growth to slow in the coming months. This is the conundrum of the housing bull. If economic growth continues at a pace that encourages inflation, the Fed is forced to raise interest rates to limit growth and hopefully inflation. If the Fed is succesful though, job growth declines, or job cuts increase, and aggregate consumer spending (and house purchases) declines. The housing bubble was started when the Fed provided too much liquidity and it is ending with the Fed taking the excess liquidity away.
Unfortuneately, the lower yield on the long bond is a signal that the market expects economic growth to slow in the coming months. This is the conundrum of the housing bull. If economic growth continues at a pace that encourages inflation, the Fed is forced to raise interest rates to limit growth and hopefully inflation. If the Fed is succesful though, job growth declines, or job cuts increase, and aggregate consumer spending (and house purchases) declines. The housing bubble was started when the Fed provided too much liquidity and it is ending with the Fed taking the excess liquidity away.
posted by Little_Silvered at 6:55 PM
4 Comments:
Even if the FED engineers a soft landing, which it has attempted and is still nursing, two things will keep a lid on real estate prices short to mid term.
1) Mortgage rates will be sticky on the way down.
2) The previous run up in prices was attributed (IMHO) to low rates in an expanding economy. Rates lowering into a contracting economy are a lot less attractive to the average Joe.
The incredibly low rates after 9/11 coupled with aging baby boomers looking for second homes brought about a land grab at the shore.
Many Manhattanites priced out of the Hampton’s suddenly realized that there was a "better" Hampton’s at the Jersey Shore and flocked to LBI. Prices of LBI real estate are now tied loosely to the Hampton’s. They are approximately equidistant to Manhattan.
What I find interesting about all this is that when speaking to children of the leading edge of baby boomers, they all still plan on buying down the shore. Unless something happens to their income they are planning on getting that second home. Some of them will get it when Dad and Mom kick, but others want it much shorter term.
Mr. Rant
CLICK ---> Rise and Fall of the REAL ESTATE MOGUL: Inside Solomon Dwek's Empire
Will fraud scandal topple pillar of the community?
With one bounced check, real estate investor Solomon Dwek set in motion a financial collapse that would bring down his $300 million empire and put his freedom in jeopardy.
Posted by the Asbury Park Press on 08/20/06
In public, Solomon Dwek, a stocky man with an easy smile, was a pillar of the community: a respected leader of a religious school, a successful real estate investor, a philanthropist and a devoted father of five.
But it turns out Dwek's real estate empire may have been built on a foundation of fraud, double-dealing and lies.
Dwek was charged by the FBI in May with defrauding PNC Bank of $21 million, and his arrest stunned the community.
How, in just a decade, could the 33-year-old Ocean Township resident and one-time real estate wunderkind amass an empire in seven states worth a third of a billion dollars?
How could his empire expand so fast and collapse even faster?
And how could major lenders, investors and even family members have been so blind to provide millions of dollars to a man they now say owesthem more than $338 million?
An Asbury Park Press investigation into Dwek's deals found that:
Questionable signatures were affixed to mortgage documents worth at least $9 million.
Dwek now owns millions of dollars in real estate that his family's nonprofit religious school transferred to family friends.
Dwek went on a $179.1 million borrowing spree for nine months before his arrest.
Dwek's defense lawyer, Michael B. Himmel, said the dispute with PNC is a civil business matter, not a federal crime.
To Winston Knass, a Florida boat builder, Dwek is a "slippery noodle." After more than seven years, Knass has yet to see the $1.1 million Dwek owes him for a 116-foot yacht.
"I feel very sorry for all the people that he hoodwinked," Knass said. "The guy's living a double life."
Since 1999 Loveladies has just about tripled.
Now the period between 1990 and 1999 saw some gains but not much. 96 through 99 saw them start to ratchet up. If you asked me or anyone else, buying in 1999 was the absolute top. I remember thinking, "I gotta buy something that I can rent out", and because I figured something bad would happen to...my business, real estate or the economy.
Best question now is a) any part of that justified, b) will it retrace some of that gain and c) who would keep buying.
a) Some portion of that was pent up demand from real buyers, some of that was speculative money and some of it was opportunistic.
Pent up demand, like myself isn't a seller. Spec money is not a large portion of holders. Opportunistic money is the fellow who says, "seems like it is a hot market, if I buy and we use it a few years and I can make some money great!" That opportunistic money probably accounts for more than the speculative money. Even so, together they are a small majority. In my little slice of heaven, one house on the ocean front one street over is a speculative house. I know one person who is trying to buy it now before it goes on the market, go figure. My guess is he won't pay the offer unless it is cheap in his opinion. Cheap to him isn't bargain basement but would tend towards 2004 prices.
b) will it retrace some of that gain
Loveladies homes in a year over year fashion, baring the economy getting bad, won't retrace much. For no other reason than you need selling pressure greater that buying demand. It will most likely be a lazy equilibrium towards early 2005 late 2004 prices.
c) who would keep buying
People making more money than me?
Mr. Rant
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