The story for this month, in finance, is one foretold. Nay, it is a continuation of a story that has been unfolding for several months now. It is a classic good vs. evil battle, and the characters are “all-time low interest rates” and the “inability to access funds”.
Our first contender, wearing the black shorts, is “all-time low interest rates”. Over the past few months everyone has been delighted to see mortgage interest rates hit historically low levels, for almost all types of loans. For example, in the week of Oct. 18 the 15 year fixed rate mortgage hit 2.66% which is in fact an all time low for this product! A ripple effect of these low rates can be seen in housing starts, where we saw an increase of 15% over August. In an effort to assert confidence in the housing market the fed has declared that mortgage rates will remain low, and has announced its plans to purchase mortgage backed securities at a rate of $40 billion per month.
Wearing red shorts, and fighting out of Washington, D.C., our second contender is the “inability to access funds”. The yin, to low interest rates’ yang, is the inability of qualified applicants to be approved for financing. In fact HUD (Department of Housing and Urban Development) recently said that they estimate 10-20% of qualified borrowers are being denied almost arbitrarily. While there is plenty of blame to go around, many speculate that the main issue is new lending rules which are overlapping and not working in harmony; thus creating an environment in which access to capital is needlessly difficult.
Who will prevail is still to be determined, but one thing is certain: for the recovery of the housing market to truly be robust, a solution must be found. Furthermore it must be found quickly as the next generation, or as they are so aptly named “Echo Boomers”, are now turning thirty and are ready to begin purchasing homes. Missing out on 10-20% of that market is something that the housing market cannot afford.
John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)
