Homebuying Will Survive QE Tapering: Economist

The housing recovery can withstand gradual upward pressure on rates from the Federal Reserve’s quantitative easing rollback, Deutsche Bank chief economist Joseph LaVorgna said Thursday.

“Housing has accelerated while rates have risen,” he noted at DB’s 2014 markets outlook press briefing in New York.

A rate increase is like red wine in that a small amount  is healthy but too much is a concern, Deutsche Bank strategists said at the briefing. Fear of missing opportunities in the market while it is still near its bottom will continue to spur buying, they say.

Dramatic spikes in long-term rates are unlikely although “it is imprudent to assume and we don’t get at least normal volatility” as a result of the Fed’s unwinding of its government-related bond purchases, LaVorgna says.

The bond purchases will need to be unwound slowly given how large and complex the QE program is, making dismantling it more quickly impractical.

“Even if they wanted to raise rates [dramatically] this year, they couldn’t do it,” he says.

So far the expected week-to-week increases in the average 30-year mortgage rate tracked by Freddie Mac’s weekly primary market survey have been relatively small to nonexistent.

Most recently this rate was down two basis points from the previous week’s average 30-year rate at a level about midway between 4% and 5%. The average 15-year fixed mortgage rate was up by just a basis point at a level roughly midway between 3% and 4%.

The average rate for a five-year Treasury-indexed hybrid mortgage is up 10 basis points and is a little higher than 3%. The average one-year Treasury ARM rate has remained the same as last week at a level about midway between 2% and 3%.

Average points are highest for 30-year mortgages at 0.7 of a point, followed by 15-year mortgages at 0.6 of a point, one-year Treasury ARMs at 0.5 of a point and five-year hybrids at 0.4 of a point.

Thirty-year rates are more than 1% higher than a year ago, 15-year rates are a little less than 1% higher than they were at the same time last year, five-year Treasury hybrid rates are almost 50 basis points higher than a year ago and one-year Treasury ARM rates are four basis points lower.

Comments (1)
QE tapering is not an item that can stand alone. It is the compilation of QE tapering, QM restrictions, a weakening economic employment environment and tightening underwriting out of QM fears.

No one factor will terminate 18% of GDP, but when viewed in total, you see a significantly different view. I wrote 5 loans last week, none will qualify for QM next week. All are over 700 FICOs and all have income over 90K with assets to spare. The one size fits all, is doomed to failure.
Posted by brian B | Friday, January 10 2014 at 2:44PM ET
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