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July 21, 1989
The mortgage market is a little shaky this morning for no particular reason, but it has been a good week.
The key datum this week was a mere .2% rise in the Consumer Price Index, less inflation than the markets expected. Though Housing Starts rose 7% in June, New Housing Permits fell 3.5%, indicating future weakness. May Business Inventories rose .7%, while sales were flat (production cutbacks caused by inventory growth are a classic recession event). The Trade Deficit widened to $10.24 billion in May, but caused no particular alarm.
In a predictable excess of optimism, homebuyers and refinancing candidates are telling me daily that "Everybody says rates are going to fall more I think we'll wait a bit." The idea is to get a good rate relative to nearby history, not futile pursuit of the absolute lowest rate in the cycle.
Last Friday's drop in the VA rate to 9.5% is good cause to review recent mortgage rate history. Though the VA has had its goofy moments in market timing, changes in the pegged rate make a good historical rate reference.
In the 10 years since April, 1979, the VA rate has been as low as single digits for a total of 16 months. Fourteen of those months were the '86'87 Glorious Refinance, the other two in Spring of '88.
During those single digit months, the VA rate made it to 9.00% once for two months, and to 8.50% once for three months. The other eleven months of single digits since '79 were right where we are now at 9.50%. The high, by the way, was 17.50% in '81.
But oh, no, smart shoppers want to wait.
There is another group out there who think "things are coming back to normal no need to rush to take advantage." A look at the changing frequency of VA rate changes should confirm to anyone that the golden days of American financial dominace in the '50s and '60s are gone.
From 1944 until 1966, the VA rate changed five times, moving gradually from 4.00% to 5.50%. Since 1980, the VA rate has averaged six changes each year.
The CPI news was so good that its hard to believe that the Fed won't ease again soon. When it does, most of the improvement will be limited to short term rates.
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