The world has gotten so used to ultra-low interest rates that even economists and money managers seem to be shocked by what happens when rates start creeping back towards normal levels.
Some of the mini-bubbles that formed in an essentially free-money environment are now starting to leak. Notably:
US Housing
While the action in this sector is nothing like the raging mania of the 2000s, prices in many hot US markets are at all-time highs, while affordability is at or near an all-time low. And now rising mortgage rates are beginning to bite.
Pending Home Sales Reflect “Dispirited†Buyers.
(Mortgage News) – Pending sales, which were widely expected to make a good showing in November, pulled back sharply instead. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts for existing home purchases, declined 2.5 percent to 107.3 in November from 110.0 in October. NAR said “the brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers.†The decrease brought the PHSI to its lowest level since January of this year and it is now 0.4 percent below the index last November which stood at 107.7.
Analysts polled by Econoday had been upbeat about the November outlook. The consensus was for an increase of 0.5 percent with some analysts predicting as much as a 2.0 percent gain.
Lawrence Yun, NAR chief economist said, “The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election. Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.â€
US Auto Sales
Cars and trucks have been one of the economy’s bright spots for several years — which seems to have gotten everyone just a little too excited. Auto financing practices have lately begun to resemble those of the subprime mortgage bubble: Today’s average loan is for more money, lasts much longer, and is held by a much weaker credit than ever before. Now, with interest rates rising and pretty much every potential buyer already locked into a car mortgage, the bubble optimism is evaporating.
