Towards the end of last year, I wrote a few times about the fact that we have pretty much fully-recovered from the ’08 crash. In fact, some might argue that we’re in a bubble again, or at least very close. But we don’t often look at (or hear in the news about) what the long-term impact of the housing crash was, and who was most impacted. It’s probably a surprise to absolutely no one that there are far more renters in the market today than home owners. But exactly who got hit the hardest may surprise you quite a bit — mostly wealthy men.

 

A few weeks ago I wrote about a blog post from the Federal Reserve. In their blog post, they had explained why the rate hike shouldn’t impact long-term mortgage rates. And they were right. In fact, we’ve seen exactly the opposite happen. We’ve had weeks and weeks of decreasing rates on long-term, fixed-rate mortgage rates. So, what’s going on here? Well, long-term interest rates don’t follow the Fed funds rate, but they do track to 10 year Treasury bonds. And investors are flooding the bond market.

 

This blog covered in a post last month the fact that the Fed has indicated a commitment to keeping long-term interest rates in the housing market low. In fact, as we also reported, the Fed rate hike was unlikely to affect long-term, fixed-rate mortgages. However, markets are complicated, and the Fed has more than one lever. As a result of its QE program, the Fed now owns $1.7 trillion in mortgage backed securities. And they’re not selling. Which is causing banks to get out of the business  Which will reduce liquidity, and may cause interest rates to rise.

 

Fitch, the rating agency, released their predictions for the 2016 housing market, and concluded that, “low oil prices, generally robust employment growth, demographics, pent-up demand, still attractive affordability/housing valuations, and a steady, moderate easing in credit standards should further stimulate housing demand in 2016”. And that was their prediction, based on the likelihood of mortgage rates going up, which, as we covered Monday, they haven’t and don’t seem likely to.

 

 

Everyone knows that student debt is mounting. There’s an entire generation coming of age under a mountain of debt, with the value of that debt (in terms of job prospects) being somewhat questionable. In a somewhat under-reported change in mortgage regulations, life got a little harder for those carrying such debt. As of last September, the FHA no longer excludes deferred student loans from the debt-to-income ratio calculation — which means that for every $10k owed in student loans, you made need to be making as much as $200 more in income if you want an FHA loan.

 

U.S. demographics are changing. Much of the talk around that topic focuses on aging Boomers and the migration of Millennials back into cities. But there are other demographic changes as well. The caucasian population will start to shrink in the next ten years, while Hispanic and Asian populations are expected to double over the next few decades. This has implications for housing requirements. Maya Brennan interviewed William Frey,  a noted demographer and senior fellow at the Brookings Institute, about what those implications are.

 

Towards the end of 2015, two things happened that made some people worry about Interest rates, and potentially hold off on buying or refinancing — the change in mortgage regulations, which was predicted to slow down the process, at least in the short run; and the Fed rate hike. As I’ve written before, neither of those _should_ have impacted long term rates. And now, for the fifth straight week in a row, long-term rates are down — at the lowest they’ve been since last April.

 

Of course, we all know that some cities are expensive. When you talk about housing in San Francisco or New York, nobody thinks that comparing to the rest of the country is a sensible idea. But the reality is that, for decades, urban housing country-wide has been cheaper than suburban housing. But with changing demographics, primarily from the Millennials’ preferences perspective, urban homes are now worth more than suburban homes (2% more, according to Zillow).

 

If you’ve been following along with this blog for a while, then you probably now know that QE3 from the Fed helped keep interest rates down at least through 2014, and probably for three quarters thereafter. Also, you know that the Fed rate hike last year was unlikely to have any impact on long-term mortgage rates. Still, there are things the Fed can do about rates, and the world is full of uncertainty. Thankfully, at the January FOMC meeting, they gave us perhaps the most clear wording the Fed has ever produced  “The Committee is … reinvesting principal payments from its holdings of … mortgage-backed securities … and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy … should help maintain accommodative financial conditions.”

 

It’s taken a long time to “recover” from the 2008 crash. But, housing prices are up, foreclosures are down, and interest rates are good. What could possibly be wrong? Well, if we look to our friends over in the U.K., we hear the story that perhaps they didn’t learn from our 2008 crash. That could have big repercussions for the U.S. housing market, because of the interconnectedness of everything these days. But perhaps even more scary is the possibility that we didn’t learn from the 2008 crash either.