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Mortgage Rates To Plunge Again?

Opposite directions - The Boston Globe - Boston.com - Business

If the conflicting messages from US and European central bankers represented a kind of interest rate tug of war, it's clear who had the upper hand yesterday. The yield on 10-year US Treasury notes fell below 4 percent again, following the lead of European bond markets to finish the day at 3.93 percent.

One more squirt of fuel on the fire: Bill Gross, the world's biggest bond mutual fund manager, predicted the Fed may begin cutting its rate targets by early next year.

If this turns out to be true, the Great San Francisco Real Estate Bubble is only in its early stages.

Posted by Bill Quick on June 24, 2005 04:27 AM |

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Comments

Sure, if you assume the bubble is tied to a single variable of rates. It's not. In Japan, housing prices have dropped with interest rates close to zero.

Posted by: seamus | June 24, 2005 11:36 AM

In Japan, housing prices have dropped with interest rates close to zero.
You're comparing apples and oranges. Japan has been in a long-running economic slump that is, for all intents and purposes, a national depression. We aren't. These bubbles here in the US are dependent upon buyers being able to finance their purchases. If they can't, the house of cards collapses. If financing becomes easier, the bubble will grow bigger. So for the local bubbles, you are wrong, because the single biggest determinant of affordability is no longer income or assets, it is financing, and that is dependent on the mortgage rate.

Posted by: Bill Quick | June 24, 2005 11:47 AM

Thanks for the great info; food for thought definitely. I'm wondering if you guys have an opinion on the time frame we could be dealing with here?

Posted by: Jer | June 24, 2005 02:11 PM

Bubbles typically don't peak until that last doubter capitulates, and the feel-good "This time is different" mantra rules over all. At this point, in the SF Bay area, we may still be a couple of years away from two or three million dollar full-fives in the Richmond, and multi-generations creative financing, ala Japan.

Oh, and speaking of Japan again - their economy over the past fifteen years has been post-real estate bubble. We're still in the bubble market. You may not be able to sell your house at a negative mortgage rate if this bubble gets high enough before it collapses.

Posted by: Bill Quick | June 24, 2005 09:24 PM

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