Low Rates And Limited Liability Mean Hot Markets

Mediterranean house

What clear-eyed mortgage underwriter would sign on to a thirty-year loan at less than 3 percent? After all, in Las Vegas, for instance, the unemployment rate in November was 11.5 percent, the second-highest in the country. The city’s main engine, tourism, has been stymied by covid. But, as if there were nothing wrong, nothing to see, or no risks to consider, new home sales are on the verge of being the highest in 2020 since the historic housing-boom year of 2007. 

“Heading into the final month of 2020, the housing market in Southern Nevada continues to impress and defy normal seasonal trends,” Smith wrote in the Home Builders Research monthly report cited by Eli Segall in the Las Vegas Review-Journal. “Despite the continuing uncertainty of the pandemic, low-interest rates and low inventory have kept both new and resale homes moving at unprecedented levels for this time of year.”

Realtors I know are swamped. They’ve never been so busy, despite mask-wearing and virtual showings. The resale market set another record (that’s six months in a row) for the highest median price, $345,000. 

“On the construction side”, Segall writes, “development plans have ramped up. Builders pulled nearly 10,400 new-home permits this year through November, up 6.6 percent from the same 11-month period last year.” 

While 9 million jobs were lost nationwide in November, as Wolf Richter perfectly describes the situation,

the housing market has gone crazy in many parts of the country—a phenomenon of the Pandemic stimulus extend-and-pretend forbearance free-money foreclosure-ban economy…from February—and that this crazy housing market couldn’t last has become apparent to everyone months ago.

On the finance end, Mark Cabana, head of US rates strategy for BofA Securities, told the Financial Times’s John Dizard: “There is going to be a train wreck at the front end of the [Treasury] curve next year (2021). There is way too much cash chasing too little paper.” Meaning, as Dizard writes, “Given what we know today about the US government’s likely spending over the next several months and its cash on hand, it is possible, even likely, that Treasury bill rates will be negative for a significant period of time.”

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