My Mortgage Blog

It is important to keep this in mind: When economic troubles emerge (as in, for example, the gradual trashing of the latest European plan to save Greece and the euro), the bad news is good news for our interest rates. And further, mortgage rates, which follow the lead of the 10-year Treasury note’s ups and downs, decline as Treasury security yields fall, driven lower by the number of global and American investors stashing their money in the “safe haven” of Treasury securities.

This—more demand for Treasury securities creating lower yields (i.e., higher prices for securities)—has helped to keep our interest rates very low, but it has done so in the midst of worry and uncertainty about European and other markets, which look increasingly prone to disaster.

And therein lies the rub, Hamlet. The ability of Greece to keep its economy afloat as it becomes more and more insolvent is floundering. And it isn’t just an economic problem. It is a political problem…which raises our concerns dramatically. Not only do we hear about the irresponsible Greeks, the untrustworthy Italians, the self-important French, etc., etc., we also hear about what an unfortunate financial and physical figure the German Chancellor, Angela Merkel, cuts. So what? So everyone is hiding knives behind their backs as they pretend to talk to one another sympathetically.

By this point, the single advantage of European distress—our own remarkably low interest rates—is not at all as gratifying as it used to be. If low interest rates were inspiring higher home purchase numbers, if the rates were actually making someone money in a sustainable fashion, we might be pleased. But they are not. It’s becoming a lost-lose transaction.

Still, we react to the decline of interest rates as if it’s wonderful news even though it isn’t any longer.

The news among specific economic indicators meanwhile isn’t terrible by any means. A jump of 80,000 payroll jobs in our nation last month is a tepid achievement, but it certainly does more for us than no new jobs at all. And a 0.1% decline in the unemployment rate is a genuine move—a slow and minimal one—in the right direction.

Among other data, what has caught my attention was the serious rise for new-home sales, which experienced a 5.7% surge in September and showed a coincidental 4-point rise in the NAHB Market Index of builder optimism. Other than this, though, real estate has little to show for it. Pending Home Sales fell by a serious 4.6% in the same month, predicting fewer home sales in the coming two months.

We look, therefore, for solutions to the obvious problems in the housing market—and the new HARP is as much a solution, for the financing of homes, as a new driver would be for the golfer whose long game has gone sour. Might help/won’t solve.

Unfortunately, we can do little other than watch…with precious little faith in the ability of European politicians to concentrate on more important concerns than Merkel’s dress size. (At the same time, we have little to no reason to feel that our own politicians can agree to act in a concerted way.)

Which leaves us with what I may be imagining about the new-home market. Imagination? Maybe. But my sense is that, instead of waiting for a solution to come along—for someone to cause the recovery to appear at last—builders have realized it’s time to make their own market, and they’ve been working long overtime hours at their drafting boards, coming up with improvements to their product that will drive buyers into their developments. If this is indeed so—and the numbers so far suggest it is—this will provide the model that all aspects of recovery will imitate.

Watch closely!