Net % of Domestic Respondents Tightening Standards on Consumer Credit Card Loans just rose to a level higher than that of the financial crisis.
Odd since US home prices are rising through the stratosphere and mortgage rates are at an all-time low. Essentially, homeowners will equity in their homes may have to turn to cash-out refis in lieu of using credit cards.
Yes, cash-out refis (white line) have grown as consumer credit tightens (yellow line).
Like the sailor said, quote, ain’t that a hole in the boat?
Back in 2011, former HUD and Freddie Mac Chief Economist Michael Lea wrote an article entitled “Do We Need the 30-Year Fixed-Rate Mortgage?” We argued that plain vanilla ARMs (without teaser rates and other tricked-up products during the housing bubble) offered consumers advantages over fixed-rate mortgages (FRMs).
The answer to that question has just been answered: adjustable rate mortgages as a percentage of all mortgages has fallen to its lowest level since financial crisis and The Great Recession.
The reason? First, consumers flock towards FRMs when mortgage rates decline. In part, thanks to The Federal Reserve’s interest rate policies (as shown below).
Lea and I argued that there are certain advantages to ARMs for consumers (see paper at link), such as a lower mortgage rate on average.
Also, empirically mortgage rates on average fall negating the “fear factor” of mortgage rates rising on an ARM reset.
The latest mortgage applications volumes from the Mortgage Bankers Association shows that the ARM% has dwindled to 2%.
5/1 ARM rates (purple) are currently higher than fixed mortgages rates. The 15-year mortgage rate is the lowest.
Yes, it is A Farewell To ARMs, but not as Ernest Hemingway envisioned.
One question that is often asked if “Where Will Mortgage Rates Be In Three Years?”
Take a look at Freddie Mac’s 30Y mortgage survey rate (white line) and M2 Money Velocity (green line). And then overlay The Federal Reserve Balance Sheet, pushing down the benchmark 10Y Treasury Note yield. It is clear that mortgage rates aren’t going up anytime soon.
Look at home price growth and The Fed’s balance sheet. As the Fed began shrinking its balance sheet in 2018 and then the Case-Shiller home price index growth rate started falling … then recovered as The Fed threw more gas on the fire.
Gold? There is also a positive relation to The Fed’s balance sheet.
The Fed isn’t going until at least 2023. So, The Fed is here to stay, distorting markets and prices.