January 7, 2013

Mortgage Rates Drop, But Set To Start Ticking Up This Year?

Average 30-Year Mortgage Rates Since 1971

According to Freddie Mac’s latest Primary Mortgage Market Survey, 30-year fixed-rate mortgage rates averaged 3.34 percent (with 0.7 points) last week versus 3.91 percent a year ago, down from 3.35 percent at the end of 2012 and within a few basis points of an all-time low.

The average 15-year fixed mortgage rate dropped to 2.64 percent last week versus 3.23 percent a year ago, down from 2.65 percent at the end of 2012.

At the same time, the price of Fannie Mae-guaranteed securities, which lenders use to price loans, "tumbled last week to the lowest since Sept. 12, the day before the Federal Reserve announced plans to add $40 billion of mortgage debt to its balance sheet each month. The drop, as lawmakers struck a budget deal and the central bank signaled it may conclude the open-ended bond-buying program this year, could lead to further increases in homeowner borrowing costs from the record lows set in December."

Mortgage Rates Start the New Year Near All-Time Record Lows [Freddie Mac]
Cheap Money Era That Saved U.S. Housing Seen Bottoming [Bloomberg]

First Published: January 7, 2013 9:30 AM

Comments from "Plugged In" Readers

I suspect that 2013 will bring about the first signs of interest rates increasing. But it could take 18-24 months of consistent upward rate pressure for the rate to have any meaningful impact on the broad market. Hard for the rates on capital to get much lower.

Posted by: eddy at January 7, 2013 1:33 PM

Aah when you're big in Japan-tonight...
Big in Japan-be-tight...
Big in Japan... ooh the eastern sea's so blue
Big in Japan-alright,
Pay! -- Then I'll sleep by your side
Things are easy when you're big in Japan
Oh when you're big in Japan

Posted by: soccermom at January 7, 2013 4:09 PM

rates will only go up when the economy is better. and the Fed will pre-announce when rates are going up, so no rush to do anything until then

Posted by: hangemhi at January 8, 2013 11:10 AM


A nice graph of what has probably been the main driver of home prices for 30 years. If this reverses, what happens to prices according to you readers?
I think Flatten or fall.
If we get a Japan, as hinted above, then rates keep falling.

Posted by: Been there at January 8, 2013 11:13 AM

Not to suggest that SF is immune to the broad market, as we clearly saw significant declines in SF as the overall housing market dropped, but I'd suggest that inventory and overall health of the 'markets' are far better drivers of home prices in SF than interest rates alone. We'd need to see something north of 6% to markedly move the needle. Considering we rarely see more than a .25 delta in rates each quarter; we have 11 quarters before we get to 6% assuming we have 11 straight quarters of increases. Anything under 6% is still pretty cheap by historical standards. The days of double digit mortgage rates are gone, maybe forever.

Whatever happened to all the talk about the elimination of the morgatge interest deduction?

Posted by: eddy at January 8, 2013 11:30 AM

Well sure they are probably more likely to start going up then they are to keep going down but only because they no longer have much room to decrease. Although I guess if the economy crashes and treasury yields turn negative again, then its possible rates could go lower. But as it is right now after the tax advantages the rate on a 15-year mortgage is almost below the rate of inflation.

Posted by: Rillion at January 8, 2013 4:07 PM

"The days of double digit mortgage rates are gone, maybe forever." per 'eddy'

...now that is a top tick comment if I ever heard one...

lol!

Posted by: johnny at January 11, 2013 8:25 AM

I do believe that 'forever' on the internet is only about three years.

Posted by: Rillion at January 11, 2013 10:14 AM

2 things will happen

either the bubble will burst and rates explode higher

or US copies Japan and goes zombie for years

either way, it's not good for asset valuations, including real estate, even in holier than thou San Francisco

Posted by: johnny at January 12, 2013 6:08 AM

The difference between the US and Japan is that:

1. People in the US keep having kids.
2. We are next door to Mexico and we don't make it _that_ hard for people to come on over.
3. We are less xenophobic than the Japanese.

Demographics still allow us to have a growing population base, need for housing, etc.. Rates can be low for quite a while, and then eventually the Fed will need to take away the punchbowl.

I saw three houses Friday in (foreclosure-ravaged!) Sacramento. We had to wait before going in at 2 out of 3 for other buyer-parties to finish. Friday afternoon 3 pm. Overbidding is becoming the norm in better 'hoods. Inventory is super-tight, the market is fixing itself. Building = jobs = eligible buyers.

There is also talk of the economic impact of a pending citrus freeze which reminds me that for every Gordon Gekko on Wall Street, there is a Billy Ray Valentine. God Bless America.

Posted by: soccermom at January 12, 2013 2:09 PM

yes, but you say nothing about 'appreciation'. real estate will not appreciate in value for years.

also, you say there will be a need for the 'Fed to take away the punchbowl' and when it does the tide will be really really low and that is when we'll see similar but worse carnage than was seen 2008 onward.

'God' and god bless america slogans won't change reality...120% debt/gdp isn't good...ask the europeans!

lol!!

Posted by: johnny at January 13, 2013 7:06 AM

The so called "demographics" advantage in America will not benefit expensive condos and homes in San Francisco. One poster above dared to bring up open houses in the Central Valley but she does not seem to understand that a buyer in Noe Valley/Pacific Heights is not a recent immigrant and NOT someone looking at foreclosures in Sacramento.

My all time Socketsite favorites were when people used to claim they heard French spoken in open houses and how people from Europe were flocking here to buy in the city, and one of the reasons presented for why they were buying in San Francisco was because of our rich sophisticated "culture".

Posted by: Sylvain at January 13, 2013 8:14 AM

Thanks for noting how daring my comment was. Truth be told, my activity in the socketsite comment section is sponsored by Red Bull. I am gunning for my own NY Times interactive piece.

Posted by: soccermom at January 13, 2013 7:52 PM

"My all time Socketsite favorites were when people used to claim they heard French spoken in open houses"

me too, but that's becuase I sold two properties to French families. those were good times.

Posted by: sparky*b at January 14, 2013 10:03 AM

I for one heard French spoken in ALL open houses I visited with my wife ;)

Seriously, there are things you need to factor in to understand why the European population is well represented among the local buyer pool.

Many Europeans who emigrated in the past 15 years are techies. They came with the dot-com/social media wave(s) and built their career path, wealth and connection with the region.

The local tech industry has to import part of its brain power. Some of it comes from Europe. This is reflected in the buyer pool even today.

Posted by: lol at January 14, 2013 11:14 AM

The last time "the French" were pointed to as a sign of market health by some on this site we went off the real estate cliff. PLEASE, let's keep the French out of this!

Posted by: NotAgain! at January 14, 2013 4:52 PM

Nope, that was on the 1532 Church Street thread (in November 2011) which was the very end of the slump and probably the last quarter you could get decent deals. Many of my French friends were bargain hunting at the time, by the way.

Posted by: lol at January 15, 2013 12:34 AM

Sorry, I'm a long time reader and you are wrong Lol. The French thing was a LONG running joke around here and goes back way before 2009.
Here is a big thread reminding people in 2009 about previous "French recovery" threads along with other long ago nonsense, it is rather a classic.

http://www.socketsite.com/archives/2009/08/noe_valley_renovation_sells_for_a_penny_over_opening_bi.html

This goes back to the Fluj (anonn) / LMRiM days when one could expect daily fireworks.

The "French spoken at my open house shows the market has turned" comment turned into a long running joke brought up for laughs along with other issues like vented vs. ventless dryers and whether the signature umbrellas given out by a sales offices would help increase the bling value of condos purchased that were not even built. During the bubble years issues such as what type of food and cocktails served at "owners receptions" for those who had deposits on units in towers under construction turned into 100+ comment battles. Those were bizarre times.

Regarding the thread posted above, beware for as one funny comment by "sidelined" noted "Wow, this has really become kind of an omnibus thread--with a world class here, a Chicago there, here a flipper, there a Noe Valley, everywhere a ... something or other." Ex-SFer does a good job at trying to put the French saving the market hysteria to rest.


Posted by: EarlyRiser at January 15, 2013 4:00 AM

Earlyriser,

You will have to re-read tat thread. There is not French at open houses talk. LMRiM does say "chinese spoken at the open house" but any talk of "the French" was about if they liked LA better and that their all different kinds of French, including dentists.

It is a great thread. Lots of we will now see Noe tank hype.

Posted by: sparky*b at January 15, 2013 8:48 AM

I think the French speaking nonsense was 2007.

http://www.socketsite.com/archives/2007/11/is_it_possible_that_priced_right_is_now_priced_below_wh.html

2007 would be about right because the market was starting to fall apart and that is when people started talking about the "real San Francisco", "north of California Street is immune", and "I've heard a lot of French spoken at open houses recently". Those old threads make some fun reading.

Posted by: anon94123 at January 15, 2013 10:03 AM

It wasn't in that thread. I just read it. Did you read it?

Posted by: sparky*b at January 15, 2013 10:35 AM

Its first appearance wasn't in that thread but that thread did have a mocking reference to it, so it pre-dates November 2007.

Posted by: Rillion at January 15, 2013 2:36 PM

^^^Exactly! Someone posted above that the comments of French being spoken in open houses started in 2011, and I was just showing that this all started more than 5 years ago. I thought Diemos had a funny post in the 2007 thread I posted ...

"Quelle idee! Ou se trouve les europeans pour acheter cette maison? (I thought I would throw that in since people are hearing a lot of french at open houses these days.)"

Diemos - November 27, 2007 6:48am

Posted by: anon94123 at January 15, 2013 3:47 PM

Nope, this is not what I said.

The comment I responded to:

(NotAgain! at January 14, 2013 4:52 PM)

The last time "the French" were pointed to as a sign of market health by some on this site we went off the real estate cliff. PLEASE, let's keep the French out of this!

My response:

(lol at January 15, 2013 12:34 AM)

that was on the 1532 Church Street thread (in November 2011)

Someone confused "first" and "last" obviously.

Posted by: lol at January 15, 2013 5:54 PM

With all the nostalgia for 'bubble times', it should be noted that the Wall Street Journal has documented the return of the offer letter. Rob and Julia Israch won a fierce bidding war for a three-bedroom townhouse in Mountain View, Calif., late last year even though their $750,000 offer—while $92,000 above the asking price—was topped by 11 rivals and was several thousand dollars below the highest bid. A key reason: The seller, software engineer Lev Stesin, was moved by a letter in which the Israchs said they worked in the technology industry and explained how the home's spacious layout would be perfect given the imminent arrival of their first child. See Can I Buy Your House, Pretty Please? in the WSJ. Is it time to feed the squirrels?

Posted by: EBGuy at January 15, 2013 6:17 PM

@EBGuy

in Statistics, what you describe is called an "outlier"

Posted by: johnny at January 16, 2013 1:43 PM

Lies, damn lies and outliers.

Posted by: eddy at January 16, 2013 2:46 PM

eddy's the MAN!!

Posted by: johnny at January 16, 2013 5:44 PM

Soccermom told you Sacramento was getting ready to rip:

http://www.nytimes.com/2013/03/21/business/economy/in-us-surprise-housing-demand-catches-industry-off-guard.html?hp

As I said before, "Inventory is super-tight, the market is fixing itself. Building = jobs = eligible buyers."

Posted by: soccermom at March 20, 2013 8:05 PM

There is also talk of the economic impact of a pending citrus freeze which reminds me that for every Gordon Gekko on Wall Street, there is a Billy Ray Valentine. God Bless America.

soccermom will you marry me?

Posted by: NoeValleyJim at March 21, 2013 12:42 AM

but noe/berna/potrero/glen park/mission didn't tank. the opposite occured. and even though tipster and lrmim/satchel have long sense realized they were completely in error about that aspect of local market despite the great amount of latitude they were given, while other more optimistic posters were routinely deleted, diemos is still on here acting arch. what gives?

[Editor’s Note: On average, prices in Noe and the Mission dropped over 20 percent while prices in Bernal and Potrero dropped over 15 percent. And when combined with high price points, those areas represented some of the greatest dollar declines in San Francisco real estate.

While some bears were definitely wrong about the magnitude of their forecast declines, they were directionally correct as opposed to those who were more optimistic and completely in error that the upper end of San Francisco would be immune to any downturn, a downturn that presented a great opportunity for those who were plugged-in and prepared.

And for the record, not a single comment has been deleted from this site for being bullish or bearish unless it was belligerent, spam, or off-topic as well.]

Posted by: anonchiban at March 21, 2013 9:07 AM

While I agree with the editor's comments that Noe/Mission/Bernal/Potrero were not immune to the deflation of the bubble from 2007 until last year, I disagree that these neighborhoods had among the greatest dollar declines, apples-to-apples. I think that would be the big mansions in the north/northwest neighborhoods in the city that sold for many millions less than listing price during that period. On a percentage basis, of course, District 10 (the south of 280 neighborhoods) fell the most. In Bernal, there were some small houses on the south and east fringes of the neighborhood that dropped more dramatically due to foreclosures, resembling District 10, while most of the neighborhood fluctuated more in line with other SF neighborhoods during that time.

Posted by: Dan at March 21, 2013 11:01 AM

Enough with the deletion paranoia Mr. Poster With Many Names. My posts sometimes get deleted too. In every case it was a matter of being too far off topic. I've seen no bear/bull bias in the deletion policy.

Posted by: The Milkshake of Despair at March 21, 2013 11:04 AM

I'm amazed that so many of you still rehash this same old stuff...over and over and over again. 1) the bubble popped and then 2) the government bailed everyone out plus 3) nationalized real estate lending. The end. Get on with your lives already.

Posted by: Legacy Dude at March 21, 2013 11:24 AM

It's never over. When everyone has loaded up on expensive real estate thanks to rock bottom rates, a tiny increase in rates will pop this new bubble.

But we're not there yet. Most of CA is more affordable today than in 2006 simply because prices haven't caught up and rates are 200 points under the 2006 levels.

If banks go back to relaxing their lending rules and bring back Alt-As and HELOC, we'll see a replay of the 2002-2006 bubble, with higher highs (due to lower rates).

This could means a doubling of prices on average and it could happen within 3 years. SF has already gone through some of that in the past 2 years.

Posted by: lol at March 21, 2013 11:54 AM

What "new bubble"? Rates aren't going up for decades. Why would they? And banks don't control lending standards, the government does.

Posted by: Legacy Dude at March 21, 2013 1:32 PM

Legacy Dude,

1 - No one in the financial industry was actually punished for the previous bubble. Sure some people lost their jobs in the mortgage business, but no bonus was ever given back, no banker has been sent to jail for predatory practices or unmanageable debt. The only time bankers went to jail was when they just dug their hands straight into the honeypot. This is a recipe for a replay, as I said, in the next few years.

2 - Yes the CFPB has set a new set of lending rules, but industry lobbyist are working overtime to water them down, go around them, or simply repeal them. What does that tell you about the bankers' intentions? By principle the industry will look for constant and reliable organic growth. During the recovery, the growth is the natural catch-up, then it's a widening of the net, and lastly it's the total relaxing of all standards. It will hapen step by step because of #1 above IF the government keeps getting weak at the knees in its regulation of the banking industry.

3 - Please note the "If" and "Could". For now this is only an hypothesis, even if I find it very likely in light of the current mass hysteria. But the further we go into it the bubblier it will look, unless a strong hand decides to reign in these wild horses. But by nature a government that cannot easily get out of the mortgage business can be instrumental in the creation of a new bubble. Therefore, I think it's more a "when" than an "if".

4 - The government has almost no other means at its disposal to motivate growth. We could be building new roads, massively switch to renewable energy and high speed rail, but because of the current state of affairs in DC, all they can do is buy mortgages at a rate of 85B/month. An yes this money does create jobs and gives cash to the economy, but this is a very familiar sight. People remember the riches of the previous bubble and will behave the same I think.

I was a bear before mid-2010 then a bull until a few weeks ago. Now I see the first signs of a bubble in the making, locally at first and then nationally as it expands geographically.

Maybe I should revive the old SanFronziScheme handle ;)

Posted by: lol at March 21, 2013 2:05 PM

There's an herbal medicine shop on Stockton I visit occasionally, for potions and wisdom. I was there the other day, and I asked, "Mr. Fong, what do I do about the emerging potential bubble in San Francisco Residential real estate?"

He smiled, drew on his Dunhill, adjusted his silk jacket and replied knowingly, "A wise man goes out to sea with one boat, but many sails, because he knows that the wind-"

Just then his shriveled wife stormed out of the back room and snapped, "Quiet your nonsense old man! Listen gweilo, when the circus is in town YOU SELL PEANUTS!"

Posted by: soccermom at March 21, 2013 4:06 PM

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