June 3, 2005
DOHFLATION:
Mortgage rates are puzzling; some fear quick rise (NELL HENDERSON, 6/03/05, Washington Post)
Mortgage rates were supposed to be rising by now, helping to gradually cool the nation's red-hot housing market.The Federal Reserve has been raising short-term interest rates steadily for nearly a year. The economy is growing at a healthy pace. Energy costs are up. If history were a guide, long-term rates would be rising, too.
But they are not. Even Fed Chairman Alan Greenspan has called this a ``conundrum.''
Defying predictions, U.S. mortgage rates are lower than they were a year ago and are falling. That's a large part of why home sales and prices are at record highs and are fanning worries of a real-estate investment bubble.
The rate on the average 30-year, fixed-rate mortgage nationally fell to 5.62 percent this week, the lowest rate since mid-February and below the 6.32 percent level of a year ago, according to mortgage financier Freddie Mac. The average 30-year rate in Florida fell to 5.367 percent Thursday.
''The housing market is going to be robust if rates stay where they are,'' said Freddie Mac's chief economist, Frank Nothaft. ``But it's hard for me to fathom why they would stay this low for long.''
Robust growth, deflation and a savings glut will do that. Posted by Orrin Judd at June 3, 2005 10:38 AM
And nowhere to put the money going out of the Euro balloon.
Posted by: Sandy P. at June 3, 2005 1:23 PMsavings glut? the savings rate in this country is near ZERO. the money has been coming from the wildly overworked Fed printing presses. americans are up to their eyeballs in consumer debt courtesy of the easy money policies of MBNA and are rife with speculative fever. we are witnessing a mania that will end, as they all do, badly.
Posted by: lonbud at June 3, 2005 1:53 PMthe money is coming from 401k and ira contributions. american's don't put much into savings accounts because the interest rates are so low; what, about 2% or so at the average bank ?
Posted by: cjm at June 3, 2005 2:11 PMlonbud:
Savings are at record levels. Household net worth is over $43 trillion.
Posted by: oj at June 3, 2005 2:21 PMppears that our hippy-dippy friend knows about as much about economics as it does about, um, voting in Fla and OH.
Posted by: Jim in Chicago at June 3, 2005 2:39 PMthe increase in the value of your home and in the value of your capital assets ain't *savings*
americans' real savings rates -a statement of money flow and not of capital appreciation- are near ZERO.
household liabilities are at record levels.
according to oj, everyone who worked for enron sported fantastic savings in the summer of '01. by that christmas they were lucky if the sported a few lumps of coal.
Posted by: lonbud at June 3, 2005 2:46 PMcjm:
like america's corporate pension obligations, americans' 401k and ira plans go laughably unfunded.
Posted by: lonbud at June 3, 2005 2:50 PMWell, one reason IRAs are underfunded is because Congress refused to up the contributory level for 20 years.
WAAYYYY back in the late 80s, they didn't like 401ks because too much money was being diverted from their grubby little hands.
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Also, the largest transfer of wealth this country has ever seen is beginning.
Why in the world would I put money in a passbook savings account? That's for my deceased great aunt's generation.
Posted by: Sandy P. at June 3, 2005 4:48 PMI don't pay taxes on stock dividends?
Posted by: Sandy P. at June 3, 2005 4:49 PMHousehold 'liabilities' have almost nothing to do with housing prices, perhaps even less than nothing.
Enron peaked in late 2000, if I remember. By spring 2001, a lot of people were nervous - "just what does this company do?". Why do you think Jeff Skilling quit? Why do you think Ken Lay didn't?
Those who held on as it sank were gambling. The employees who had their whole 401(k)'s in Enron were doing something even more extreme than gambling.
There was an editorial in the WSJ sometime around 1996 (I believe) about the perils of putting the entire pot in the employer. The man writing it had done just that - he worked for a publisher that went belly up (can't remember which one, but a well-known name). Polaroid, Lucent, Xerox, and a host of others provide more evidence (unrelated to the dot.com mess).
On the other hand, someone who owned Enron until the fall of 2000 would have done quite well. Does that make such a shareholder (in the words of Chris Martin, from Coldplay) "the most evil thing in the world"?
Posted by: jim hamlen at June 4, 2005 1:43 PM
OJ:
I believe that I trademarked "dohflation" a few weeks ago.
Regarding the post, I can only echo Yul Brenner's words in THE KING AND I, "tis a puzzlement."
Posted by: Dave W. at June 4, 2005 6:20 PM