Interest Rates Dip, Consumer Confidence Climbs

Interest Rates Dip, Consumer Confidence Climbs

Let’s check in on how Consumer Confidence and mortgage interest rates fared during January.

First up, here’s the Consumer Confidence data as of November:

Consumer Confidence

At 79.1, the Present Situation Index increased 5% between December and January, and is up 41% from a year earlier. The Present Situation Index is currently up 292% from its December 2009 low point, and sits at its highest level since April 2008. The Expectations Index rose again in January as well, increasing 3.5% from December.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

Mortgage Interest Rates

As of this week, the 30-year mortgage rate sits at 4.31%, down slightly from the recent high of 4.58%, but up almost a point from the low set in May of last year. Current interest rates are roughly on par with where they were in August 2011 and, and still over two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

32 comments:

  1. 1

    The interest rate chart doesn’t seem to work in IE or Chrome, but the last one does work in Chrome.

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  2. 2
    The Tim says:

    RE: Kary L. Krismer @ 1 – It helps when I actually upload the correct image. Fixed. Thank you.

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  3. 3

    Rhonda’s post this morning is probably of interest to this topic:

    http://mortgageporter.com/2014/01/the-fed-says-easy-squeezy.html

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  4. 4
    sam says:

    Volatility in interest rates, stock market. The markets are trying to figure out where to go. If Fed continues on this tapering rate, we will be done with tapering by Aug/September time frame.

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  5. 5
    Erik says:

    RE: sam @ 4
    That makes no sense. We have tapered from 85B to 75B and now to 65B I think. you could say the interval is 10B taper per 6 months. By my calculations it will take a little over 3 years to taper to no support.

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  6. 6
    sam says:

    By Erik @ 5:

    RE: sam @ 4
    That makes no sense. We have tapered from 85B to 75B and now to 65B I think. you could say the interval is 10B taper per 6 months. By my calculations it will take a little over 3 years to taper to no support.

    From Kary’s link

    They did announce in their statement they will ease off another cool $10 Billion per month starting in February of their mortgage backed security purchase program.

    Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.

    >>>>>>

    I think you can do the math. Its not 10 billion per 6 months. its per month

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  7. 7
    Kmac says:

    Consumer confidence is slipping according to University of Michigan/Thompson Reuters

    http://www.bloomberg.com/news/2014-01-31/michigan-sentiment-index-decreased-to-81-2-in-january-from-82-5.html

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  8. 8
    Erik says:

    RE: sam @ 6
    This could raise interest rates and inventory, which would lower prices again. Seems pretty likely that will be the outcome if that happens. I wonder what interest rates will be? This further supports late 2015 or 2016 being the next bottom. If anyone is thinking of selling, they should do it now, then wait a couple years to pay cash for a house. We are headed for a median housing price death spiral.

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  9. 9
    sam says:

    Erik,

    Its the fed. they can suspend the taper or come up with QE4. So far, they are signaling that taper is not going to stop. Yield on the 10 year T bill and 30 year T Bond have gone down by 33 and 31 basis points from start to end of Jan. So, People are seeing 4.2/4.1 interest rates, down from 4.5 and 4.7% and are going bonkers. ARMS are back with full force. Wonder when blackstone and the likes will start unloading the rentals. When they do, every one will want to sell, just like every one wants to buy now.No where in the world exists such a rigged system where people dont even know that they are basically playing to some one else’s tune. We will have to pay for our monetary policy for the last 6 years.

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  10. 10
    ARDELL says:

    RE: Erik @ 8

    NAR said 5.4% by end of 2014 in a recent report. Not saying I agree. Just repeating what was said. I think they have a vested interest in wanting to keep the fear of higher rates coming, in play.

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  11. 11
    whatsmyname says:

    Interesting charts. Consumer confidence “present situation” was about 170 in January 2001; about 30 by January 2009. Can anyone identify the commonality of that particular period? Extra points if you’ve been saying the Obama period is the worst ever.

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  12. 12
    Erik says:

    RE: ARDELL @ 10
    When the feds went from buying 85B in mbs to 75B in mbs and mortgage rates went from 3.5% to 4.5%. The NAR said when we go from 75B in mbs to 0, rates will go up less than a point to 5.4%. Why does 10B in support add 1% interest and 75B in support add only 0.9% interest? I would have thought interest would have gone up much more.

    Sam: Robert Shiller said that as soon as Blackstone thinks prices are going to go down, they will sell. Maybe you already knew that. Their finger is on the trigger.

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  13. 13
    whatsmyname says:

    RE: Erik @ 12
    You were closer before you started listening to sam. The announcement means that the fed will reduce its purchases by $10B/month from $75B/month to $65B/month. It will then continue at $65B/month until they announce another change. There is no schedule for $0. No one really knows when that is coming because it depends on things that haven’t been observed yet.

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  14. 14
    Macro Investor says:

    Many times over the past couple of years, I’ve warned readers that historically low rates ARE A TRAP. Now you see why. A smallish increase in rates has frozen out a lot of buyers and threatened to cause prices to drop. Now imagine rates go to a more normal 7-8%.

    You want to buy a house when rates are historically high. Then when they normalize lower, you naturally see a nice profit. You play the cycles and you get rich with very little effort. You get impatient and go against the flow, and everything in life is a struggle. Why do people insist on doing that to themselves???

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  15. 15
    Erik says:

    RE: Macro Investor @ 14
    I finally agree with you on this one. It is preferable to have a load of cash in your bank when high interest rates come. Then pay cash or a big down payment. I hope rates go up to historical highs, so I can capitalize on a reduced price.

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  16. 16
    whatsmyname says:

    By Macro Investor @ 14:

    Many times over the past couple of years, I’ve warned readers that historically low rates ARE A TRAP. Now you see why. A smallish increase in rates has frozen out a lot of buyers and threatened to cause prices to drop. Now imagine rates go to a more normal 7-8%.

    Those must be the marginal buyers. Sales and prices have continued to improve pretty good in the period since rates started moving up a year ago. Check out the YOY numbers in Tim’s monthly NWMLS summaries. I will now imagine rates going to 7-8%: Hey, demand for borrowed money is good. The economy generating this demand must be healthy and/or inflating. Either way indicates high demand and prices for durable assets.

    want to buy a house when rates are historically high. Then when they normalize lower, you naturally see a nice profit. You play the cycles and you get rich with very little effort. You get impatient and go against the flow, and everything in life is a struggle. Why do people insist on doing that to themselves???

    Your plan is to get rich with very little effort by playing a 48-70 year (roundtrip) cycle?
    http://finance.yahoo.com/blogs/talking-numbers/222-years-interest-history-one-chart-173358843.html

    Looks like rates should top out in another 30 years. And having a house depends on this? What exactly is your idea of a macro investment?

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  17. 17

    RE: whatsmyname @ 16RE: Macro Investor @ 14 – You’re both right and both wrong, to an extent. But I’d lean more toward whatsmyname’s position.

    If rates go back up to “normal” levels that will make it more difficult for purchasers, but that doesn’t mean that your values will drop below whatever you paid (especially those who found bargains like Eric.). And if interest rates rise above “normal” that would likely be due to inflation, meaning real property prices would likely rise too.

    Then there’s the actual fact of having to pay the higher interest rate, if your goal is to actually own the house at some point. At 4% the total interest you’ll pay over the life of the loan less than the amount of the original loan amount. At 6% you’ll pay more, and at 10% you’ll be over 2x as much as the original loan amount, so to own a $300,000 home you’d pay over $900,000. Hardly an enviable situation, particularly if inflation causes the price of the house to rise and you end up paying $400,000 for the house and over $1,200,000 in total payments.

    Also we’ve had abnormally low interest now for at least four years. How much of someone’s adult lifetime are they supposed to wait for government policy to change?

    Finally, Macro, I responded to your foreclosure timeline post in the open thread.

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  18. 18
    doug says:

    Hmmm no.mention of the massive number of babyboomers turning 65 on a daily basis. They are going to push huge amounts of inventory onto the market. I suspect that most people in houses right now are not selling because they have little or no equity in there houses. On top of that banks are not making any money and together with the fed they are going to attempt to save the dollar raising interest rates to possibly 13 %.

    Look for a big fall in home values as the dow and everything collapses

    The good news Seahawks win by 40 points in one of the most lopsided superbowls in history. As our man number 12 takes over the whole stadium celebrating the greatest city in America Seattle.

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  19. 19
    sam says:

    By whatsmyname @ 13:

    RE: Erik @ 12
    You were closer before you started listening to sam. The announcement means that the fed will reduce its purchases by $10B/month from $75B/month to $65B/month. It will then continue at $65B/month until they announce another change. There is no schedule for $0. No one really knows when that is coming because it depends on things that haven’t been observed yet.

    Taper itself means slow reduction. Yes there is no set timeline, but the way Fed is talking about taper, it looks like they are going to be tapering off $10 billion every month. The Fed meets every month and decides whether to continue taper. Fed has talked about taper last september, jolted the markets a little bit, gave it a heads up and prepped it to avoid a major knee jerk reaction. I expect that by the end of the year, the Fed will be out of the bond buying business. as i said, they can always do QE4 depending on the market conditions. Who can stop the juggernaut?

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  20. 20
    Macro Investor says:

    RE: whatsmyname @ 16

    Yep, this is just what I’m talking about. Thank you.

    Here is a poor sap who will never get ahead in life. He has to have everything now, and he’s willing to bid on $500k shabby wooden boxes on tiny plots of mud. He sees only the monthly payment and doesn’t understand value.

    I mean no disrespect. To each his own. But when you are ready to stop being a loser, or just average, and instead retire rich, think about what “buy low, sell high” really means. Many here have tried to help.

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  21. 21
    Erik says:

    RE: Macro Investor @ 20
    Who are you talking about? I bought for $92.7k and sold 2 years later for $233k. That is the definition of buying low and selling high. Are you talking about me macro idiot?

    You cannot argue my success. Couldn’t have turned out better for the money I had in hand to get the profits I got. You morons that save biweekly checks to hopefully someday have enough money for shelter are the fools. I am sure all the simple minded programmers will disagree, but you cannot argue. I have already won. Turned out you were wrong. Ray pepper knows what is up. So does Ardell.

    I will continue to wait patiently on the sidelines with fat stacks of cash looking for the opportunity to buy your home when you are displaced from it. I will pay cash and leave you homeless.

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  22. 22
    m-s says:

    RE: Erik @ 21
    Tasteless.
    Whining when you are down, sycophantic (look it up) when you want advice, and arrogant when you are up. Great combo. Good luck.

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  23. 23
    wreckingbull says:

    Nice. We finally are done with the Juanita condo being rammed down our throats. Now, it’s FAT STACKS OF CASH. I’ll bet he cashed that 100K into singles and rolls around in bed with it “Indecent Proposal” style.

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  24. 24
    whatsmyname says:

    By Macro Investor @ 20:

    RE: whatsmyname @ 16

    Yep, this is just what I’m talking about. Thank you.

    Here is a poor sap who will never get ahead in life. He has to have everything now, and he’s willing to bid on $500k shabby wooden boxes on tiny plots of mud. He sees only the monthly payment and doesn’t understand value.

    I mean no disrespect. To each his own. But when you are ready to stop being a loser, or just average, and instead retire rich, think about what “buy low, sell high” really means. Many here have tried to help.

    Whoa, did you just go all macro platitudinous on my a$$?
    If so, your assumptive facts were wrong on all counts. Hopefully you know that building a scenario based on blind assumptions often leads to bad investment and other decisions.

    I am nothing if not reciprocal, so I will offer you the opportunity to think about what “plan for tomorrow, but do not live for tomorrow” really means. Oh, and many here are beyond help.

    But let’s put some meat into the discussion. According to your theory and my chart, the next optimal period for house purchasing is 30 years away. The last one was 32 years ago. This means that your house buying plan is a one time deal for people with human life spans. Now for some people, it’s only about the money; and that’s fine. But for the person who really values owning and managing their own house; why would one sacrifice half or more of one’s adult life for a little profit optimization at the end? Especially with so many ways to accrete wealth, with knowledge that housing will have to be paid for regardless, with the realization that one could pay the house off fully before disciple-of-macro-investor nervously approaches the closing table. How rich could a person be to sell their life so cheaply?

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  25. 25
    Voight-kampff says:

    By m-s @ 22:

    RE: Erik @ 21
    Tasteless.
    Whining when you are down, sycophantic (look it up) when you want advice, and arrogant when you are up. Great combo. Good luck.

    I guess this is a quasi-deffense of Erik:
    I have had similar sycophants (Eriks) in a few of my companies. They perform really well and become quite succesful, although I always wondered if they realized I was wise to all sucking-up and platitudes.  I guess my point is this: his whining, arrogant, sychophantic style may serve him very well in RE or other endeavours, Honestly it already has… And Im only assuming he sleeps well.

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  26. 26
    Azucar says:

    By Erik @ 21:

    RE: Macro Investor @ 20
    Who are you talking about? I bought for $92.7k and sold 2 years later for $233k. That is the definition of buying low and selling high. Are you talking about me macro idiot?

    You cannot argue my success. Couldn’t have turned out better for the money I had in hand to get the profits I got. You morons that save biweekly checks to hopefully someday have enough money for shelter are the fools. I am sure all the simple minded programmers will disagree, but you cannot argue. I have already won. Turned out you were wrong. Ray pepper knows what is up. So does Ardell.

    I will continue to wait patiently on the sidelines with fat stacks of cash looking for the opportunity to buy your home when you are displaced from it. I will pay cash and leave you homeless.

    Sorry to break this to you, Erik, but having cleared $128k from your previous transaction, while better than your transaction before that (where you short sold/walked away from your commitment), isn’t the kind of thing that sets most people up to think that they should sit back on their laurels and “wait with those fat stacks of cash and buy a really nice place with all cash”. $128K doesn’t buy much of a house in Seattle… (at least to most people).

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  27. 27
    Scotsman says:

    You guys are funny. There’s lots of historical evidence that shows home prices don’t correlate particularly well with interest rate changes. There’s a lot more going on here economically than your 2-3 variable “models” capture. This discussion is the equivalent of saying CO2 causes global warming. How has that worked out? We are in a very slow but so far steady recovery. Incomes and home prices in the Seattle area are continuing to go up. The biggest threats to your well being and lifestyle aren’t interest rates or falling home prices but currency devaluation and inflation, a combination that will fool you into thinking all is well as your standard of living slowly deteriorates.

    Sorry, Eric- $100K isn’t really a fat stack of cash- it can be gone in very little time and only represents one hit in a lifetime trading. Check with us in 20 years.

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  28. 28
    rainbow says:

    By Scotsman @ 27:

    You guys are funny. There’s lots of historical evidence that shows home prices don’t correlate particularly well with interest rate changes. There’s a lot more going on here economically than your 2-3 variable “models” capture. This discussion is the equivalent of saying CO2 causes global warming. How has that worked out? We are in a very slow but so far steady recovery. Incomes and home prices in the Seattle area are continuing to go up. The biggest threats to your well being and lifestyle aren’t interest rates or falling home prices but currency devaluation and inflation, a combination that will fool you into thinking all is well as your standard of living slowly deteriorates.

    Sorry, Eric- $100K isn’t really a fat stack of cash- it can be gone in very little time and only represents one hit in a lifetime trading. Check with us in 20 years.

    Historically,interest rates raise did not result in a home price drop. But then you are making an assumption that past performance is an indicator of the future. Incomes and home prices are steadily going up? By what percentage? The same percentage as the increase in home prices in the last one year??? Are there more people moving into the area? yes?? Amazon is moving in lots of people. So yeah there is competition for homes. But peoples incomes, even for those at Amazon, which probably pays more than others, is not growing exponentially.I have friends at Amazon who tell me how the comp structure is. If you think that home prices are not sensitive to interest rates at all, ask the NAR folks on how much difference it made when the rates went to 4.5 from 3.2. How much difference will it make when it goes to 5.4 or higher?? Nothing Zilch?? our wages lag general inflation. Fed says we have a deflation problem and inflation is not even in sight.While there may be lot more going on at a macro level, it is safe to say that interest rates, wages, unemployment, inventory and demand determine more than 90% of the value of a property.

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  29. 29

    By rainbow @ 28:

    While there may be lot more going on at a macro level, it is safe to say that interest rates, wages, unemployment, inventory and demand determine more than 90% of the value of a property.

    But interest rates, unemployment and wages are in turn determined by many more variables.

    As to the topic of interest rates, yes they do affect prices, but as I mentioned earlier if interest rates go really high that would likely be due to inflation, and real estate would likely go up too. Maybe with some lag, but you clearly don’t want to be holding cash during periods of inflation.

    The last time we had that situation was starting in about 1978, when interest rates headed to over 12%. Our more recent declines were much more severe than what happened then, and afterwards nominal prices really shot up after rates returned to “normal” due to the decreased value of the dollar.

    http://seattlebubble.com/blog/2008/02/19/king-county-home-prices-1946-2007/

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  30. 30
    sam says:

    By Kary L. Krismer @ 29:

    But interest rates, unemployment and wages are in turn determined by many more variables.

    As to the topic of interest rates, yes they do affect prices, but as I mentioned earlier if interest rates go really high that would likely be due to inflation, and real estate would likely go up too. Maybe with some lag, but you clearly don’t want to be holding cash during periods of inflation.

    Kary,

    Do we really need inflation for the interest rates to hit 6%? I dont think so. The fed funds rate is at 0% for a long long time and the tapering is likely to continue.These two variables should push interest rates to any where between 5%-6%. How much does the mortgage payment increase for every 100,000 for 1%? I dont have a calc handy but I would say it is good enough to force some correction.

    Did you or any one noticed that Jan 2014 was the worst month after Jan 2009? On a different note, there is a research study that suggests that you can just buy an index such as the S&P on Jan 1st and sell off on Jan 31st every year and can make good returns. This is good for 95% of the calendar years since 1970 or so. The years when January sucked for equities, you can guess what happened.

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  31. 31

    6% isn’t “really high.”

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  32. 32
    rainbow says:

    By Kary L. Krismer @ 31:

    6% isn’t “really high.”

    High for me. 6% is high enough to cause changes in the values assuming wages don’t go up drastically and unemployment does not come down to 4%. May be the fed is trying to get us to the 6% rates only when the unemployment hits 4%. But given our regular boom and bust cycles, it is highly unlikely that we will hit 4% unemployment any time soon..

    In other news today, The DJI shed 300 points based on weak economic data.

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