Over the holidays, long-term interest rates rose almost a half-percent, the 10-year Treasury note moving into the 3.8 percent range — the highest since the "double top" last summer. Mortgages have held remarkably well, with the lowest-fee stuff up to about 5.25 percent.
A renewed, two-group consensus drove the jump: The economy is in a solid recovery, or even if it isn’t, immense Treasury borrowing will force rates higher. Both groups agree that the Fed should stop its assistance, either because the economy no longer needs it, or because even if the economy does need help, to continue assistance would produce inflation.
I think this consensus is mistaken. There is no meaningful recovery under way, and the Fed has already pulled up short. More data like today’s will add to policymaking tension, force the administration’s hand, and soon have the Fed back to buying mortgages, Treasurys or both.
Today’s payroll report will be spun unrecognizably, but the reality is that no job creation is under way. New claims for unemployment insurance have fallen one-third from their peak last spring, but that positive signal is more than offset by an extraordinary shrinkage in those even trying to find jobs — 661,000 souls gave up last month.
The rate of unemployment stayed put, but the condition of the workforce is deteriorating.
Some sectors are OK. Health-care employment is unhinged from economic reality; big parts of technology are untouched (innovation is notably miraculous); and giant multinationals are improving.
However, the giants have no more connection to ordinary citizens than holiday gifts company Scrooge & Marley. The giants can shed labor and disinvest here and redeploy in still-hot emerging markets — into niches big and small all over the world. Nobody has access to adequate credit except those giants.
The greatest public-policy tension-builder is housing, and new reports added weight to frayed cables.
The Fed released its December meeting minutes this week. Noted widely: "a few" members wanted the Fed to stay in the MBS-buying business; one wanted it to stop altogether (see Inman News). Fair enough. …CONTINUED
However, the minutes contain a disturbing litany, repeated in an everybody-knows voice throughout 13 pages: "Sales of new homes increased significantly … Demand for housing continued to firm … The housing sector showed continuing signs of improvement …"
I do not know if the Fed is trying positive jawbone, if it is in self-deception, or if it genuinely doesn’t understand, but it is mistaken.
MGIC, the mortgage insurer, released its latest market analysis and guide to its underwriters: of 73 metro areas, one (Denver) is rated "improving." The National Association of Realtors’ November measure of pending sales of homes "kerplunked" 16 percent. Seasonally adjusted applications for mortgages fell 22 percent over the holidays, 38 percent below one year ago.
Then, today the U.S. Federal Housing Finance Agency, the regulator of Fannie and Freddie, at last got around to its loan-portfolio performance report for the third quarter. It takes time to account for 30 million loans, but a 90-day lag seems a lot.
Mid-year last year these reports morphed into a "Foreclosure Prevention and Refinance" title, tub-thumping the agencies’ success at obeying administration demands for loan modification. Nothing beats Orwellian double-speak as indicator of failure in big institutions or government.
The FHFA trumpet: "405,700 … active trial and permanent loan modifications" as of Nov. 30, 2009. Bad is good!
Reality: "Trial" mods did increase by 212,000 in the third quarter. However, "completed" ones — people actually making new payments — increased by only 46,000. Perhaps half will redefault. Meanwhile, total delinquencies jumped 312,000 (net of mods), 208,000 of the increase in the 90-day-plus category certain to foreclose.
With tension building, "pretend" is wearing thin.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.
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