The majority of loans done post-2010 were fixed long-term loans that everyone qualified for

The majority of loans done post-2010 were fixed long-term loans that everyone qualified for

Today, homeowners are not forced speculators that need home prices to rise to refinance out of an exotic loan

After 2010, mortgage debt structure was very vanilla and boring. Exotic loan debt structures are thankfully largely a thing of the past. We don’t have major loan recast rate risk vs. incomes. The people who bought homes in America post-2010 were, for the most part, legit homeowners, meaning they bought homes for shelter and stability for their family, not speculative financial assets. Boring debt might not be a sexy story. Still, it is very sexy to my eyes because it a healthy, financially responsible way to live.

The vaccination process is going much faster now and disaster relief is hitting bank accounts

In summary, the cash-out refinance boom (if you want to call it that) isn’t much of a story. Due to COVID-19 or not, some homeowners have ount of equity from their homes while refinancing to lower interest rates. For the overall housing market and the U.S. economy, this will not be a problem in the short, medium, or long term.

I get why the crazy crash cult housing bears are trying to turn this story into something more. As professional gifters and anti-central bank fanatics, that’s what they do. But when our learned economists and professors are caught trying to make this into some unfounded bad story, it makes me wonder if they don’t understand how solid homeowner households are that are employed. Haven’t we learned from the previous expansion that not all debt is bad?

An often forgotten fact is that the highest-income households typically have the highest debt along with the greatest financial assets. Adjusting to inflation, consumer debt really hasn’t grown much since the peak of the housing crisis, and the structure of that debt tends to be very boring and low risk.

The bottom line is that one needs to understand the debt holders’ underlying financial profiles before one makes a call regarding the short, medium, or long-term risk to the economy that these debts represent.

On a related topic, the 10-year yield recently closed at 1.64%, If you follow my work you know that this is a big deal for me. The economic model I proposed for how America would get back on track after COVID-19, which I called the “America is Back” model, required that the 10-year yield gets into a range between 1.33% – 1.60% in 2021. This range has been established this year.

The next thing is to see is if the 10-year can close above 1.64%, and get follow-through bond selling for the next day or two. If that occurs, we can see the 10-year up to 1.94%, which was the peak bond yield forecast for 2021. This can add 0.25% – 0.375% higher in mortgage rates.

Keep in mind that the economic data warrants much higher yields than 1.94%. COVID-19 is still hindering some of our sectors from really taking off. We are overdue for a stock market correction that could send yields lower. Also, bonds are short-term oversold so we can see a short-term rally in bonds and lower mortgage rates. However, the bond ing from the top of the highest mountain, the Great American Bears of COVID-19 failed like all the American bears before them since 1790.

American homeowners were financially solid prior to the COVID crisis. They had wage and equity growth and were able to refinance their debt to lower interest rates. This is why I stressed that homeowner loan profiles never looked better, because their fixed low debt cost vs rising wages just got better each year. We also just came from the longest economic and job expansion ever recorded in history. Without COVID-19 the American bears had nothing to hang their hat on.