Keep Calm and Carry On
This week the UK announced a coordinated package of monetary, fiscal and regulatory measures. As this article recalls, the UK continues its tradition of having quietly spoken professionals keep the public informed:
The quite heroes standing up in our time of crisis provides a timeline of stoical British reaction to crises.
It is important to remember, in the words of the Persian adage: “this too shall pass.”
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
New Listings mid-week March 11
Here are the most recent New Listings:
Marblehead New Listings
Swampscott New Listings
Salem New Listings
Beverly New Listings
Lynn New Listings
and click New Listings to search in other towns.
Click on these links for details:
Mortgage rates after the collapse of bond yields
Coronavirus and the Housing Market: Part 2
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Open Houses Sunday March 8
It might just reach 50F today for these Open Houses:
Click on these links for details:
Marblehead Open Houses
Swampscott Open Houses
Salem Open Houses
Beverly Open Houses
Lynn Open Houses
and click Open Houses to search in other towns.
Mortgage rates after the collapse of bond yields
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
New Listings week ending March 6
Here are the week’s New Listings:
Marblehead New Listings
Swampscott New Listings
Salem New Listings
Beverly New Listings
Lynn New Listings
and click New Listings to search in other towns.
Click on these links for details:
Mortgage rates after the collapse of bond yields
Coronavirus and the Housing Market: Part 2
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rates after the collapse of bond yields
Somewhat to the surprise of markets, the Federal Reserve (Fed) lowered its Fed Funds Rate (FF) this week by 0.5% to 1.25%, in response to the rapidly developing, coronavirus-induced fear of an economic slump.
What does this mean for mortgage rates? First, I will explain the link – or lack of link – between FF and FRM- and what actually drives mortgage rates. This is easier than predicting what will happen going forward, but for what it is worth I offer some thoughts at the end of this piece.
Five charts explain the factors driving mortgage rates. In all cases the numbers are at the dates that the Fed has changed its FF over the last 4 years: 10 increases, followed by four decreases.
Fed Funds rate (FF)
The Fed Fund rate is the rate at which banks lend to each other overnight.
After increasing from 0% to 2.5% since late 2015, cuts in 2019 and 2020 have lowered the rate to 1.25%.
30-year Fixed Rate Mortgage (FRM)
The FRM reached nearly 5% in late 2018 and dropped to an all-time low this week of 3.29%.
10-year Treasury yield (10T)
The yield on the 10T is influenced by two major factors: the outlook for the economy (expanding businesses invest creating demand for money) and geopolitical events – the US dollar and US Treasuries are seen as a safe haven during times of uncertainty.
The yield reached 3.2% in November, 2018 (which was the time of the peak in the FRM), but in the last two weeks the yield has plummeted from around 1.5% to 0.74% on Friday.
The spread, or difference, between FRM and FF
If there were a link between FF and FRM it would show up in this chart. In fact, the spread dropped from 3.7% in 2015 in 2019 before increasing to 2.0% recently, demonstrating that there is no direct link between FF and FRM
The spread, or difference, between FRM and 10T
We see more consistency between FRM and 10T, where the spread has, until recently, been in a much tighter range of 1.5% to 1.8%.
Indeed, over the last several years the spread has been very stable averaging around 1.7%. But I would point out two things in this table: first, the spread widened significantly in the great recession in 2008; and, secondly, while the median spread for the year has been in a narrow range, within the years there have been quite wide variations – in particular look at 2008/2009.
Comment
The FF rate affects the lending rate for credit cards, auto loans, adjustable rate mortgages, all of which are impacted by banks’ Prime Rate, which moves with the FF rate. Fixed Rate Mortgages – the typical 30-year mortgage – have a longer life and their benchmark is the closest Treasury security, which is the 10T. Conventional mortgages are bundled and sold to investors, who require a risk premium – higher yield – over that offered by 10T.
As can be seen, that premium – spread – has been remarkable constant over recent years. It does fluctuate from time to time – as the yield on 10T tends to move quickly at times, although never before as quickly as in the last two weeks – but in recent years has always comes back to around that 1.7% level.
Here are a few thoughts about the current situation:
1. Nobody knows how severe the coronavirus will prove to be, but there seems to be a good chance that many sectors of the world economy will see an abrupt slump, rather than a gradual slowdown.
2. The hope is that the crisis stage of COVID-19 will pass quite quickly and that this will be followed by a rapid recovery in economic activity.
3. But nobody knows.
4. In times of crisis countries need strong political leadership, reassuring the public that, while serious, all possible action is being taken to confront the situation. The response has varied country to country, but we must hope that there will be a more coordinated effort in the very near future.
Mortgage rates
As the last table showed, whereas over time the spread between FRM and 10T has been consistent in the 1.7% range, there have been wide variations in the short-term. We saw that in 2008 and 2009, a time of great economic duress when widespread buying of US Treasuries as a safe haven drove yields down and spreads widened. Those spreads returned to the norm as economic conditions improved.
The current economic situation is very different from the Great Recession. Indeed, but for COVID-19 the extremely strong employment numbers announced yesterday would lead to expectations that the Fed would be increasing rates; instead, the market is expecting another cut.
But as many commentators have pointed out, lower interest rates will not overcome health concerns. For example, lower rates will not make people travel.Money is cheap and plentiful – what is lacking right now is demand. It is a time for fiscal measures not monetary ones.
Another factor is the demand for mortgage-backed securities, the bundles of mortgages sold to investors. In the Great Recession, investors were wary about the value of the underlying security – residential mortgages – and so demanded a larger premium. That should not be a concern now with housing markets remaining very strong.
So will mortgage rates get to 3%, a number raised in my Are mortgage rates headed to 3%? article last June.
My best guess – and at this stage it is a guess – is that in time, when we know the extent of the economic slump and the pace of recovery, interest rates will raise again.Could the FRM reach 3%? Yes. Will it? Ask me again in a couple of weeks.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
www.TeamHarborside.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Open Houses weekend March 7/8
Here are this weekend’s Open Houses, shown in date order. As always, an updated list will be published at 8 a.m. on Sunday.
Click on these links for details:
Marblehead Open Houses
Swampscott Open Houses
Salem Open Houses
Beverly Open Houses
Lynn Open Houses
and click Open Houses to search in other towns.
Mortgage rates after the collapse of bond yields
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Housing market inventory shrinks even further in March
Single Family Homes (SFH)
After years of decline, the number of Single Family Homes (SFH) for sale in Essex County on the first of the month compared with a year earlier (YOY) increased from August 2018 until June 2019. Since then the decline has resumed and, in fact, accelerated, as this table shows:
The next two charts (the first for January to June; the second July to December) show the number of SFHs for sale on the first of the month since 2017. In the first chart the numbers for 2020 YOY show the renewed decline (in 2019 inventory was increasing until June).
The second chart shows the decline YOY each month from July to December in 2019.
Condos
The number of condos for sale increased YOY from June 2018 until August 2019, but since then there has been a decline, which has also accelerated in recent months:
These two charts show numbers since 2017 for January to June, and July to December.
The first chart shows the decline in 2020 YOY, while in 2019 inventory was increasing in the first 6 months of the year.
The second chart shows inventory continuing to increase in 2019 YOY in July and August, steadying in September, and then resuming the decline in October.
Comment
While the overall supply of SFHs in Essex County remains very low at just 1.5 months ( a market has traditionally been considered to be in equilibrium between buyers and sellers when there is 6 months of supply) the position varies widely by price, as shown in this table:
While inventory early in the year is normally low, a feature of 2020 so far is the speed at which new listings, if priced appropriately, are selling. If you are thinking of selling, now is a really good time.
The conclusion remains that the market remains in favour of sellers right up to $1.5 million, but above that dramatically swings in favour of buyers.
Mortgage rates after the collapse of bond yields
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
Mortgage rates after the Federal Reserve rate cut
I will publish a report on Saturday when markets have – I hope – settled down somewhat after the gyrations of recent days (which seem like weeks) and the cut in the Federal Reserve Funds rate – the rate at which banks and other depository institutions lend money to each other, usually on an overnight basis – announced on Tuesday.
The Fed Funds rate translates directly into the interest rate charged for credit cards, auto loans, etc. but not for the traditional 30-year fixed rate mortgage (FRM) which usually is based upon the yield on the US Treasury 10-year Note (10T). But as I will explain on Saturday, although the spread – the amount investors want above the yield they can obtain on 10T – has been very consistent around 1.7% in recent years, in times of stress the spread can vary widely. In 2008, for example, it reached 3.1%.
For an article explaining the relationship between FRM, 10T and the Fed Funds rate read Mortgage rates explained and Coronavirus and the Housing Market: Part 2.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
New Listings mid-week March 4
Here are the most recent New Listings:
Marblehead New Listings
Swampscott New Listings
Salem New Listings
Beverly New Listings
Lynn New Listings
and click New Listings to search in other towns.
Coronavirus and the Housing Market: Part 2
Will house prices continue to rise in 2020?
Are You Thinking of Selling in 2020?
Swampscott homeowners: now is a GREAT time to sell
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Open Houses Sunday March 1
Cold but sunny for these Open Houses today: (more…)
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