Florida Housing Market Report: Neither Bust or Boom

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, CO. Here’s his recent housing market analysis …

[Florida mortgage rates] have risen again, beginning to push 6.5 percent for low-fee, 30-year loans, and big-media “news” won’t discover the jump until late next week because of lags in national surveys. It’s real, though.

The definitive 10-year T-note has blown up to 4.88 percent from 4.45 percent only six weeks ago, the damage caused by a colossal bond-market error in economic forecasting. It was just certain last summer and fall that a slowing Florida housing market would tip over the economy, and the Fed would begin to cut its 5.25 percent overnight rate in 2007.

As completely mistaken as mistaken can be.

The effects of this error are going to ripple for months, interest rates continuously vulnerable unless we are saved by a delayed appearance of general economic slowdown. Here’s a great thing for the housing sector: if you want lower mortgage rates, you’ve got to hope for a deeper housing crater. Fire or ice.

The same is true for fans of the stock market, which has had an ugly week as a voyeur at the bond-market wreck.

Florida home loans could quickly run close to last year’s highs, just below 7 percent, in high-volatility trading. It’s been a long time since we’ve had quarter-point, over-the-weekend moves, wockety-tong up and down the stairs, but the correction following a mistake as big as this tends to break all the technical rules of trading. Support, resistance, oversold … do not apply.

From the straightforward to the economics of a new forecast and bond market adaptation, there is a lot in play.

First, the health of the economy is unequivocal: today’s news of a 2.3 percent jump in December orders for durable goods is too strong for argument. Everyone knew that job data was running above expectation, but many dismissed that strength as a lagging indicator, convinced that weakness would ultimately appear, and the Fed would ease. They were wrong.

The housing reality: neither a blowing bubble nor a bottom. Housing and its effects on the whole economy are going to take years to resolve. A jump in long-term rates is a shove from behind that will certainly worsen conditions in the bubble zones, and will also begin to close the escape hatch for adjustable-rate Florida home loan-reset procrastinators.

The big shoe whistling down: mortgage credit quality is deteriorating rapidly. Experts think that rising loan defaults will be limited to 2006 originations, and they are mistaken about that, too: older paper will soon begin to tank. As it does, credit standards for new loans will begin their inevitable tightening, and diminish the supply of buyers. Nobody knows how that spiral will play out; it’s just beginning.

The Fed on pause at 5.25 percent must feel like the audience at a Keystone Cops flicker during one of the side-to-side chase scenes. Last year, low and falling long-term rates stimulated the economy while the Fed was trying to slow it. Now, rising long-term rates will brake the economy, just as the Fed began to think it had to tighten some more.

Fed Chairman Ben Bernanke’s pause is either a sign of trans-Greenspanic wisdom, or he’s the luckiest man since Ringo Starr.