Saturday, June 1, 2013
What idiot would ever lend anyone hundreds of thousands of dollars for 30 years at less than 4%?
Earlier this week, I (Dan Ferris) was looking at mortgage rates. I noticed the 30-year fixed-rate mortgage hit 4% Tuesday, a large jump from 3.81% the previous Friday. (The markets were closed last Monday for Memorial Day.)
Why did mortgage rates spike higher on Tuesday?
Rising mortgage rates is likely a sign of the economy picking up. Higher demand for borrowed money will generally push rates higher. Plus, the 30-year mortgage rate could go to 5% and still be cheap. (Of course, that doesn't mean you should rush out and buy a house if you can't afford it just because rates are at historic lows.)
Ten-year Treasurys also jumped from 2.01% on Friday to 2.13% on Tuesday. Remember... the government (in the guise of entities like Fannie Mae and Freddie Mac) guarantees the loans that underlie mortgage-backed securities (MBS). So the rising rates (which coincide with a selloff in MBS and Treasurys) could indicate investors would rather own riskier stocks than safe MBS or Treasurys.
Most folks think higher rates are bad for stocks and the economy. If the 10-year Treasury goes to 15%, we'll talk about that. For now, higher rates aren't necessarily bad at all.
The flippers are returning to the housing market...
In California, the number of homes "flipped" in recent months – those bought and resold within six months – has reached the highest point since late 2005, according to real estate data firm PropertyRadar.
House flipping is popular all over the country... But according to brokers, it's most popular in California. In the past year, six of the 10 cities with the biggest gains in home prices were in California. Home prices are up 25% year over year in Sacramento, San Jose, and San Francisco. They're up 18% in Los Angeles.
But there is a major difference between the flippers leading up to the real-estate crash and today: leverage. In 2005, people who had never purchased a home before were putting zero money down to buy homes with the hopes of making a quick buck.
Today, buyers are focusing on foreclosed homes and short sales... And they're paying cash.
The Wall Street Journal tells the story of a man named Robert Ganem, who beat four other offers to purchase a $600,000 short sale in Orange County, California. Ganem made some cosmetic improvements and sold the house a few weeks later for $755,000.
Meanwhile, the latest S&P Case-Shiller home price index shows not only are housing prices still rising... but the increases are accelerating.
The 20-city index climbed 10.87% in March compared with March last year, beating expectations of a 10.2% year-over-year increase.
It's also the fastest increase since April 2006.
But as True Wealth editor Steve Sjuggerud has been saying for months now... housing is more affordable than ever. Interest rates are lower. And banks are more willing to lend if your credit is good.
Steve nailed the housing trade... He recommended the iShares Home Construction Fund in February 2011, a little more than two years ago. Nobody wanted anything to do with housing back then. Now, the fund is up around 90%.
And Steve is not backing down. Just a few days ago, he said housing is one of the greatest investments in the world today.
Most people stink at making big macro calls on entire markets. But Steve is as good at that as anyone. His readers have made triple-digit gains on health care and big double-digit gains on foreign stocks, biotechnology, and other major market moves he's predicted over the last year or so.
Steve's big call in the March issue of True Wealth has already produced a double-digit gain, and he says the trend he based the recommendation on should last until 2015.
If you want to learn more about the trend behind Steve's latest call... check out his True Wealth letter. You can try it out for four months at no risk to you. If you decide it's not for you within that time, you can get a full refund. If you want to sign up for True Wealth (at just $39 a year) without sitting through a long sales presentation, click here.
Date Range:5/23/2013 to 5/30/2013
Date Range:5/23/2013 to 5/30/2013