Higher Interest Rates Are Disrupting The Job Market

If your job has anything to do with real estate or mortgages, it is time to start thinking about a career change.

This is especially true if your job is related to refinancing mortgages.  All of the smart people have already refinanced.  As rates continue to rise rapidly, the only ones that will be refinancing are really stupid people.  According to Zero Hedge, mortgage refinance activity has already dropped by a whopping 70 percent since early May…

For the 16th of the last 18 weeks, mortgage refinance activity plunged (dropping 20% this week alone).Since early May, when the dreaded word “Taper” was first uttered, refis have collapsed over 70%. With mortgage servicers and providers large and small laying people off, it seems hard for even the most egregiously biased bull to still suggest that the housing recovery is sustainable.

And this rise in interest rates is just getting started.  The Federal Reserve has not even begun to “taper” yet.  Once that starts happening, the consequences could be quite dramatic

“In early 1994, when the U.S. recovery gained strength, the Fed started a tightening cycle and bond markets crashed not only in the U.S. but also around the world,” European Central Bank Executive Board member Joerg Asmussen said on Tuesday.

“If spillovers were large in 1994, we can expect them to be even larger today in an even more deeply interconnected world,” he added in the text of a speech for delivery in Brussels.

Of course when the Federal Reserve “tapers” their quantitative easing it won’t really be “tightening” as much as it will be slowing down the pace at which they are recklessly creating tens of billions of dollars out of thin air.  But the effect will be similar to what we saw back in 1994.

As interest rates rise, it will become much more expensive to buy a home and much more difficult to sell a home.  To give you an idea of how dramatically interest rates can affect housing affordability, I wanted to share some numbers from one of my previous articles

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000.

Are you starting to get the picture?

As interest rates go up, home prices will have to fall.  Otherwise, nobody will be able to afford them.

In the end, we could end up with tens of millions more homeowners that are substantially “underwater” on their mortgages.

So who is to blame?

The Federal Reserve of course.

They created this bubble by forcing interest rates down to record low levels.

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