Reuters: Mortgage Volume Down 75%
As the bond market crashes again this morning, it is worth noting that already, the sharp rise in interest rates that I have been documenting is taking its toll. Here is a Reuters argument that blows one of the pillars of the green shoot theory out of the water:
EXCLUSIVE-Higher rates taking toll on home loan demand: GMAC
NEW YORK (Reuters) - Higher interest rates are exacting a severe toll on home loan demand and U.S. housing prices are not near a bottom, according to the chief executive of one of the country's largest lenders.
Tom Marano, chief executive of mortgage operations at GMAC, in an exclusive interview with Reuters on Tuesday, said home loan volume at GMAC is about 75 percent lower now than when mortgage rates hit record lows several months ago.
"Up until the past week and a half, the Federal Reserve had been successful at bringing interest rates on mortgages down," he said.
The U.S. housing market is in the midst of its worst downturn since the Great Depression, with home prices falling since hitting a peak in the second quarter of 2006.
There have been some signs that the housing market is stabilizing. The National Association of Realtors on Tuesday reported that pending home sales, based on new sales contracts, spiked 6.7 percent in April, the biggest jump since October 2001.
When mortgage rates hit a low, about two months ago, GMAC -- the auto and mortgage lender that has received billions in government bailout money -- registered about $750 million to $1 billion mortgage rate-locks a day. The interest rate on 30-year fixed-rate mortgages was around 4.60 percent during this time, Marano said.
On May 21, when mortgage rates were around 4.80 percent, volume had dropped to about $500 million a day. By Monday, mortgage rates were at 5.15 percent, and originations dwindled to $215 million, he said.
"The Federal Reserve probably needs to pick up the pace of its purchases at this point," he said, of what is needed to keep rates low.
"If mortgage rates do not go back down, home prices will need to go lower to lure buyers," he said.
The Federal Reserve is in the midst of purchasing $300 billion in Treasuries and $1.25 trillion in mortgage-backed securities in order to unclog credit markets and to keep interest rates lower.
Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has met resistance in the bond market.
Treasury yields, which are linked to mortgage rates, have risen sharply in recent weeks, and mortgage rates have responded in kind.
Not only are mortgage rates not going back down, they are in fact going SCREAMING higher today as bid in the 10-year treasuary has disappeared entirely. Hope you're enjoying you 100 point Dow rally and don't mind sacrificing the hopes of interest rates staying at reasonable levels in return. I can just see the history books now--the US Govenment went bankrupt as interest rates went to 10% because Obama/Bernanke wanted the Dow to keep rising. Idiots.