Nov. 17: The housing market with 5% rates; blockchain update; Grandma’s Thanksgiving letter

The economy is like the weather, with everyone talking about it but there is nothing we can do about it. Some believe that growth will continue and rates will continue higher. Other aren’t so sure. (Thanks to California’s Steve A. who sent this note about Home Depot’s warning of a slow down ahead.) Sure, people in their 20s and 30s have heard about 3.5% mortgage rates for quite some time, but we’re in a different environment, and plenty of folks in our biz started their careers when rates were in the teens. Although not always easy when an LO is dealing with a hesitant borrower, it helps to keep rates’ impact on the housing market in perspective.

With that in mind, Mark Fleming, Chief Economist with First American Financial Corporation, wrote a piece that I received in my email titled, “Why the Housing Market Can Thrive at 5 Percent Mortgage Rates.” “(Recently) the 30-year, fixed mortgage rate hit a seven-and-a-half-year high of 4.86 percent. Most experts believe mortgage rates will continue to rise, reaching 5 percent in 2019. Despite all the talk about rising mortgage rates, it’s important to evaluate this in context. While today’s rates appear higher than the 3 to 3.5 percent rates of 2016, they remain well below the historic average of 8 percent. Yet, the increase in borrowing costs for home buyers, given increasing home prices, has prompted discussion about how the housing market will respond to higher rates.

“Title agents and real estate professionals surveyed by First American believe that the housing market is fairly resilient to rising rates. For example, earlier this year, we asked title agents and real estate professionals what mortgage rates would need to hit before discouraging potential first-time buyers from the market. Their estimate: 5.6 percent. When we asked the same question in the first quarter of 2017, the response was 5.4 percent.

“Historically, mortgage rates have exceeded these thresholds and people have still purchased homes, so what can we expect as rates continue to rise in the near term?

“The history of mortgage rates may provide some insight. We examined mortgage rates and economic history over the last four decades, and identified four distinct mortgage rate eras that may offer helpful context for today’s home buyers.

The 1980s: The Federal Reserve’s War on Inflation. It’s almost unimaginable for today’s buyers, but home buyers in 1981 were faced with 30-year, fixed-rate mortgages at over 18 percent.  Rates declined from the 1981 high point, leveling to around 10 percent at the end of the decade. At the time, the Federal Reserve, under Chairman Paul Volcker, was waging a war on inflation. In an effort to tame double-digit inflation, the Federal Reserve drove interest rates higher. The Fed raises rates in a strong economy to encourage sustainable economic growth, and cuts rates when the economy needs support. Today, the economy is strong – unemployment is low, inflation is on target, consumer confidence is high, and wages are rising. To promote further sustainable economic growth, the Federal Reserve today is increasing interest rates.

1990s and Early 2000s: The Information Boom. In the 1990s, inflation calmed down. Mortgage rates tend to follow the same path as long-term bond yields. Rising inflation will push up long-term bond yields to compensate investors for the higher level of inflation, and mortgage rates typically follow suit. The 30-year, fixed mortgage rate averaged 8.4 percent through most of the 1990s, before dipping below 7 percent in 1998.

“A major reason for the decline in inflation was strong economic growth due to the arrival of the internet and information technologies, which prompted corporate capital investment, enhanced productivity and spawned investment in new internet-based ‘Dot Com’ businesses. In the early 2000’s, after the ‘Dot Com’ stock market bubble burst and sparked a mild recession, the Fed lowered interest rates further. The 30-year, fixed-mortgage rate reached what was then a historic low point – below 6 percent in 2003.

2006-2008: Housing Bubble and Bust. House prices always went up, nationally, until they didn’t. The collapse of the housing bubble exposed the financial system’s excessive leverage, contributing to the financial crisis and the Great Recession. To combat the crisis, the Federal Reserve cut interest rates as much as possible and implemented an unprecedented monetary stimulus policy known as quantitative easing (increasing the money supply by buying government and mortgage bonds). With that, a new era of cheap credit was upon us. As a result, mortgage rates fell below 5 percent in 2009, a level the housing market had not experienced in more than 50 years.

2010-Present: Recovery. Riding the wave of quantitative easing and the Fed’s continued monetary stimulus, mortgage rates entered this decade at 4.7 percent. By 2012, they had fallen to about 3.5 percent. In 2013, rates increased to nearly 4 percent in response to the Fed’s announcement that it would taper quantitative easing. The ‘taper tantrum’ aside, mortgage rates remained near or below 4 percent until 2016. Since then, the 10-year Treasury yield has risen as the Fed slowly tightened monetary policy, and the economy expanded. The 30-year, fixed-rate mortgage followed suit and increased to the current level of 4.86 percent.

“Today’s Rates May Not be as Great, But They are Still Below Eight. [Catchy Mark!] What is the lesson from this trip through the “mortgage-rate” past? The recent period of mortgage rates between 3 and 3.5 percent is a historic anomaly, as challenging as it might be to believe so after experiencing it for 10 years. Historically, the housing market has performed well when mortgage rates were considerably higher than today. Rates averaged 6 percent between 2001 and 2009. In 2000, they averaged 8.05 percent. In the decade between 1980 and 1990, they averaged a whopping 12.5 percent.

“The key take-away, however, is that people were still buying homes across all of these mortgage rate eras. Mortgage rates have adjusted in the past in response to high inflation, a technological revolution, a housing crisis and a financial collapse. However, today’s higher mortgage rates are due to a near record-long economic expansion, and a strong labor market. If you think 5 percent is high, take a walk down mortgage memory lane.”

Blockchain & IT security

What’s the Saturday commentary without a little blockchain chatter? As a refresher, a blockchain, originally block chain, is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a time stamp, and transaction data. By design, a blockchain is resistant to modification of the data. Should title companies and MERS be nervous it will replace them? Ask them.

Yesterday the commentary mentioned Equator which has launched a mortgage servicing blockchain solution. Through an agreement with Factom, Inc., the Factom® Harmony blockchain-as-a-service (BaaS) platform is integrated into the Equator® PRO software-as-a-service (SaaS) solution. The addition of Factom’s Harmony provides Equator customers the opportunity to incorporate the recordation of data, documents and key audit events onto Factom’s blockchain solution. Factom’s Harmony provides options for individual loans to be tracked as individual chains of data on the blockchain. This design allows Equator PRO customers the option to embed blockchain preservation into their various workflows, allowing for an immutable and encrypted blockchain audit record to be built for each loan and each workflow step.

In other fields it is making inroads. Stock exchanges are finding innovative ways to harness blockchain to accelerate and improve back-office functions. Swiss exchange owner SIX Group will launch a digital asset-trading platform next year, while Australia’s ASX will introduce a clearing and settlement platform based on blockchain in 2021.

The Financial Times reports that, “The banking sector has seen years of overhype and experimentation surrounding distributed ledger technology, but one project led by JPMorgan Chase, the Interbank Information Network (IIN), is quietly producing results at scale. The IIN is essentially a more efficient way for participating banks to transfer US dollars across borders and institutions. Its elevator pitch is that problematic payments, which are currently being held up for as much as two days for compliance issues or to resolve errors, could go through almost instantly under the new system.”

Did you know that most ATMs can be hacked in under 20 minutes, and even less, in certain types of attacks? Yup. Here’s the actual report.

Grandma’s Invitation

Dear Family,

I’m not dead yet. Thanksgiving is still important to me. If being in my Last Will and Testament is important to you, then you might consider being with me for my favorite holiday.

Dinner is at 2:00

Not 2:15

Not 2:05

Two. 2:00

Arrive late and you get what’s left over. 

Last year, that moron, Ron, fried a turkey in one of those contraptions and practically burned the deck off the house. This year, the only peanut oil used to make the meal will be from the secret scoop of peanut butter I add to the carrot soup.

Daryl, your last new wife is an idiot. You don’t arrive at someone’s house on Thanksgiving needing to use the oven and the stove. Honest to God, I thought you might have learned after two wives – date them longer and save us all the agony of another divorce.

Will, this year, the house rules are slightly different because I have decided that 47% of you don’t know how to take care of nice things. Paper plates and red Solo cups might be bad for the environment, but I’ll be gone soon and that will be your problem to deal with.

House Rules:

1. The University of Texas no longer plays Texas A&M. The television stays off during the meal.

2. Laura, the “no cans for kids” rule still exists. We are using 2-liter bottles because your children still open a third can before finishing the first two. Parents can fill a child’s cup when it is empty. All of the cups have names on them and I’ll be paying close attention to refills.

3. Sheryl, last year we were at Bob’s house and I looked the other way when your Jell-O salad & Fritos showed up. This year, if Jell-O salad comes in the front door it will go right back out the back door with the garbage. Save yourself some time, honey. You’ve never been a good cook and you shouldn’t bring something that wiggles more than you. Buy something from the bakery.

4. Grandmothers give grandchildren cookies and candy. That is a fact of life. Shane & Daniel, your children can eat healthy at your home. At my home, they can eat whatever they like as long as they finish it.

5. Christina, I cook with bacon and bacon grease. That’s nothing new. You’re being a vegetarian doesn’t change the fact that stuffing without bacon is like egg salad without eggs. Even the green bean casserole has a little bacon grease in it. That’s why it tastes so good. Not eating bacon is just not natural. And as far as being healthy… look at me. I’ve outlived almost everyone I know.

6. Mimi & Claire, salad at Thanksgiving is a waste of space.

7. Sareen & Sarah, I do not like cell phones at family get togethers. If you sit at the table and text on your phone when here, or if you decide you must talk to someone during dinner, I will take it from you and drop it into a pot of crackling hot bacon grease on the stove that is there just for that purpose.

8. Andy & Timmy, I do not like video cameras. There will be 32 people here. I am sure you can capture lots of memories without the camera pointed at me.

9. Being a mother means you have to actually pay attention to the kids. I have nice things and I don’t put them away just because company is coming over. Jen & Steve, watch your kids and I’ll watch my things. I know what is here, so don’t force me to frisk and search when the party is over.

10. Nancy, a cat that requires a shot twice a day is a cat that has lived too many lives. I think staying home to care for the cat is your way of letting me know that I have lived too many lives too. I can live with that. Can you?

11. Words mean things. I say what I mean. Let me repeat: You don’t need to bring anything means you don’t need to bring anything. And if I did tell you to bring something, bring it in the quantity I said. Really, this doesn’t have to be difficult.

12. Dominos and cards are better than anything that requires a battery or an on/off switch. That was true when you were kids and it’s true now that you have kids.

13. Amber, showing up for Thanksgiving guarantees presents at Christmas. Not showing up guarantees a card that may or may not be signed. 

Bryan, in memory of your Grandfather, the back fridge will be filled with beer. Drink until it is gone. I prefer wine anyway. But one person from each family needs to be the designated driver and must have a valid driver’s license. 

I really mean all of the above. 

Love You,


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