Tag Archives: mortgage

Are We Really in a Housing Bubble?

by DeniseSiede138 Posted on April 19, 2017

Mother Jones

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Are we in yet another housing bubble? The Case-Shiller chart I posted yesterday suggests we probably are: housing prices may not be at their previous 2006 peak, but they’re nonetheless far higher than their historical average.

But wait. What about interest rates? Low interest rates mean lower monthly payments, and that’s what really matters, not absolute prices. This is true enough, but how low are real mortgage rates? That is, mortgage rates adjusted for inflation. This low:

Historically, the average real 30-year fixed mortgage rate is a hair above 4 percent. Right now it’s at 3.5 percent. In other words, mortgage rates aren’t really all that low. This suggest that historically high home prices also mean historically high mortgage payments.

But there are other ways of looking at this. For example, total mortgage debt as a percent of GDP has retreated to 2002 levels and isn’t rising. Mortgage debt service as a percent of household income is low and declining. Both of these are good signs.

On the other hand, these are aggregate numbers that include everyone with a mortgage. It would be better if we could see them just for new buyers, but I don’t know where to find that. And if you look at the price-to-rent ratio, which is usually a good harbinger of housing bubbles, it’s been rising since 2012 and is now at 2004 levels. That’s not so good, and if we get to 2005 levels we should start being scared.

As usual, there are a lot of ways of looking at this, which is why different people will give you firm but very different opinions about home prices. Personally, I think the evidence suggests we’re in another bubble. But I might be wrong.

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Are We Really in a Housing Bubble?

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The Housing Market Is Stalling, and Stagnant Wages Are to Blame

by GeorgiaLZS Posted on April 25, 2014

Mother Jones

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Although the economy has shown signs of life lately, growth is still pretty sluggish. The primary culprit appears to be housing: as Neil Irwin points out today, even after recovering from its Great Recession nadir, investment in residential property remains anemic compared to its average level over the past few decades. People just aren’t buying new houses—or refinancing old ones—fast enough to power a serious recovery.

The proximate cause for this is twofold. First, median incomes have been pretty sluggish: household income today is only about 2 percent higher than it was before the start of the recession. That’s just not enough income growth to get young couples confident enough to move out from their parents’ basement and strike out on their own. Second, as the Wall Street Journal reports, rising interest rates have killed off the refi market:

Mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery.

….The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.

Mortgage loans were basically flat, which is bad enough. But refinancing is important too, since it puts money in people’s pockets, which they can use to either pay down debt or spend on consumer goods. Either one is good for an overleveraged economy. But now that’s coming to an end.

Housing is the single most important driver of economic growth. In the past, pent-up demand for new housing following a recession would eventually overwhelm financial trepidation, causing young families to start buying new houses. This time that hasn’t happened, and sluggish median incomes are almost certainly to blame (along with high debt levels among college grads, who are one of the prime markets for starter homes). The virtuous circle of rising incomes leading to new home buying—which in turn stimulates the economy and raises wages further—simply hasn’t happened. We are learning the hard way that there’s a stiff price to be paid when virtually all of the economic gains of a recovery go to the well off. Life may be good for them, but without broadly shared prosperity, the larger economy is stuck in a rut.

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The Housing Market Is Stalling, and Stagnant Wages Are to Blame

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10 Things Elizabeth Warren’s Consumer Protection Agency Has Done For You

by BraydenUqe Posted on March 14, 2014

Mother Jones

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The Consumer Financial Protection Bureau (CFPB), the watchdog agency conceived of and established by Sen. Elizabeth Warren (D-Mass.) in the wake of the financial crisis, had a hard time getting on its feet. The GOP tried everything it could to hobble the bureau, but to no avail. Over the past couple of years, the CFPB has issued dozens of protections shielding consumers from shady practices by mortgage lenders, student loan servicers, and credit card companies. Here are ten things the CFPB, which was created in 2011, has done to protect the little guy:

1. Mortgage lenders can no longer push you into a high-priced loan: Until recently, lenders were allowed to direct borrowers toward high-interest loans, which are more profitable for lenders, even if they qualified for a lower-cost mortgage—a practice that helped lead to the financial crisis. In early 2013, the CFPB issued a rule that effectively ends this conflict of interest.

2. New homeowners are less likely to be hit by foreclosure: In the lead-up to the financial crisis, lenders also sold Americans “no doc” mortgages that didn’t require borrowers to provide proof of income, assets, or employment. Last May, the bureau clamped down on this type of irresponsible lending, forcing mortgage lenders to verify borrowers’ ability to repay.

3. If you are are delinquent on your mortgage payments, loan servicers have to try harder to help you avoid foreclosure: During the housing crisis, loan servicers—companies that collect payments from borrowers—were permitted to simultaneously offer a delinquent borrower options to avoid foreclosure while moving to complete that foreclosure. New CFPB rules force servicers to make a good faith effort to keep you out of foreclosure. That’s not all: Loan servicers will now face civil penalties if they don’t provide live customer service, maintain accurate mortgage records, and promptly inform borrowers whose loan modification applications are incomplete.

4. Millions of Americans get a low-cost home loan counselor: In Jan 2013, the CFPB required the vast majority of mortgage lenders to provide applicants with a list of free or low-cost housing counselors who can inform borrowers if they’re being ripped off.

5. Borrowers with high-cost mortgages get an outside eye: Lenders who sell mortgages with high interest rates are now required to have an outside appraiser determine the worth of the house for the borrower. If a borrower is going to be paying sky-high prices for a fixer-upper, at least she’ll know it beforehand.

6. Fly-by-night financial players will be held accountable: Part of the CFPB’s mandate is to oversee debt collectors, payday lenders, and other under–regulated financial institutions that profit off low-income Americans. The bureau is preparing new restrictions on debt collectors, and considering new regs on payday loan industry. In the meantime, the bureau is cracking down on bad actors individually.

7. Folks scammed by credit card companies get refunds: In October 2012, the CFPB ordered three American Express subsidiaries to pay 250,000 customers $85 billion for illegal practices including misleading credit card offerings, age discrimination, and excessive late fees. This past September, the CFPB ordered JPMorgan Chase to refund $309 million to more than 2.1 million Americans for charging them for identity theft and fraud monitoring services they didn’t ask for.

8. Student lenders face scrutiny: The CFPB oversees private student loan servicing at big banks to ensure compliance with fair lending laws. In December, the agency announced that it will also start supervising non-bank student loan servicers, which are companies that manage borrowers’ accounts. Many of these servicers have been accused of levying unfair penalty fees and making it hard for borrowers to negotiate an affordable repayment plan.

9. Service members get extra protection: In June, the CFPB ordered US Bank and its non-bank partner Dealers’ Financial Services to refund $6.5 million to service members for failing to disclose fees associated with a military auto loan program. In November, the CFPB ordered the payday lender Cash America to pay up to $14 million for illegally overcharging members of the military.

10. Consumers get a help center: If your bank or lender does anything you think is unfair, the bureau has a division dedicated to fielding consumer complaints. The agency promises to work with companies to try to fix consumers’ problems.

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10 Things Elizabeth Warren’s Consumer Protection Agency Has Done For You

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