We’ve counseled borrowers to lock on the dips in recent months. The latest dip was deeper and more prolonged than most, but it was still a dip. It has become less of one this past week.
Many investors have cycled out of the haven investments -- namely U.S. Treasury securities -- and cycled into riskier investments, namely stocks. Treasury prices are down, stock prices are up. This means Treasury yields are up as well. The yield on the 10-year U.S. Treasury note is up 10 basis points in the past week. Mortgage rates have been up nearly as much.
Despite the rise, opportunities still exist to lock a 30-year fixed-rate conventional mortgage below 4% on a best-case scenario. The opportunity, though, has become less prevalent in recent days. The opportunity could become even less prevalent in subsequent days.
Across the Atlantic, consumer-price inflation made a surprise appearance. Inflation in Great Britain spiked to 2.9% on an annualized rate. The unexpectedly high inflation number stoked speculation the Bank of England may raise interest rates sooner than later.
Because markets are interdependent, it’s hardly beyond the realm of possibilities that the same surprise could occur on our side of the Atlantic. We noted last week that inflation may not be manifest in consumer prices, but it has been manifest in investment and asset prices. It’s just a matter of time before inflation manifests in consumer prices. When it will manifest is anyone’s guess. Because it’s anyone’s guess, borrowers assume a risk for waiting.
Why the focus on inflation?
Few factors influence the long-end of the credit yield curve as much as consumer-price inflation. Even if we get only a whiff that a change is in the air, long-term interest rates will be the first to experience it. Rates can spike higher with little warning.
As for the here and now, quite a few prescient borrowers have exploited the latest dip. Mortgage purchase applications rose 11%, according to the latest weekly data provided by the Mortgage Bankers Association. The increase lifts the year-over-year gain to 7%.
The MBA also tells us that credit availability is again on the rise. The MBA’s Mortgage Credit Availability Index increased 0.7% to 180.2 in August. The purse strings aren’t quite as loose as they were this past spring, but they’re close enough.
Good News: Middle-Class Rising
So much for the meme on the stagnating middle class.
The U.S. Census Bureau reports that America's middle class had its highest-earnings year ever in 2016.
The Census Bureau reports that median household income rose to $59,039. The previous high was $58,655 in 1999. (The figures are presented in inflation-adjusted, not nominal, dollars.) The Census Bureau chalks up the rise in earnings to more people finding full-time jobs, or better-paying jobs, last year.
Stagnation was (and is) unlikely even without rising wages. We’re continually better off because our wages continually buy more for less. Thanks to Moore’s Law, we frequently pay less for superior quality.
For example, purchasing a television demanded 127.8 hours of work from the average worker in 1959. The average worker in 2013 could purchase a television with only 20.7 hours of work, according to data from the American Enterprise Institute. And let’s not overlook quality. The 2013 television far exceeds the quality and features of the 1959 television. We’re all getting a bigger bang for our bucks. What’s more, we’re all getting a bigger bang, even if the bucks are held constant.
The good news is that the bucks aren’t held constant. The latest Census Bureau data prove that the middle-class wages are rising. We’re confident that the rise will propel housing forward. After all, less money as a percentage of income spent on reoccurring consumer goods, means more money available to spend on higher-priced durable goods. Owner-occupied homes are a higher-priced durable good.