Interview Transcription

Brian: For about the first decade of doing this, I said things that were incorrect.

Diana: I never do.

Brian: I thought for a long time that mortgage rates were almost directly linked to the 10-year bond yield, so if yields went up, mortgages would go up. So, you've put me in my place in a good way on this.

Diana: They are loosely related.

Brian: They are related. So, if we ever see the 10-year go higher again, what can we expect from mortgage rates? Why do they move?

Mark: Well Diana, you've made a really good point: we buy based upon our monthly payment, and so that first time buyer is very sensitive to rates. That is the source of demand today in the housing market, the millennial first-time buyer. We already see that sort of pull-back because of affordability, not everywhere, but certainly in some markets and house prices are beginning to reflect it.

Brian: But you know my point Diana, if we see the 10-year yield, it touched 3%, which by the way we act like is high now. Somehow 3% is high, I remember the days of 7-8%. My gosh, I feel old. If we see the 10-year go up, would we expect Diana, mortgage rates to necessarily go up.

Diana: Mortgage rates would go up, yes. And when we talk about loosely following, yes, they loosely follow the 10-year yield. But there are other factors in it like: the government pulling out of the mortgage market, mortgage-backed securities, are new investors going to come in to the market. That plays in on rates as well. We know we are not having the government play so much in the mortgage market anymore. We are looking towards mortgage reform, potentially in the next couple of years. What’s that going to mean to rates? So again, it’s looking at how much higher rates are. And you are absolutely right, I bought my first apartment in Mahattan at 9% and I was so excited.

Brian: Felt good about that?

Diana: I felt really good. I am not going to tell you what year that was, but it was really good. But again, house prices have been rising, because mortgage rates have been so artificially low. So, it is kind of part of the problem. If we see rates go up, home prices might come back a little bit.

Brian: Mark, is there any reason to be worried now? We are starting to see radio ads, commercials, “no money down, 5% down”.

Mark: Is this happening again, are we I a bubble?

Brian: Yes, that’s kind of what I am asking. Are we getting stupid again?

Mark: Well its really hard to say. We have be concerned obviously about those kinds of what we would call, financial innovation, maybe, that’s a nice way to say it. But really fundamentals are very different right now, than they were back in the crisis.

Brian: Really, tell us why it is different this time.

Mark: Famous last words, right? But we have strong fundamental demand in that first-time millennial buyer. And yes, there is a response to rising rates, but we are talking about 4%, 4.5%, 5% not 9%, 10%, 12% mortgage rates. It’s very different for that reason and we just haven’t built enough homes. So last time I checked people like to live indoors, and there is going to be that strong push on housing because of those fundamentals.

Diana: And I don’t think you are going to see those mortgages again. I mean maybe you will see an ad on TV but that is not the bulk of the market. Foreclosures, delinquencies, they are all at near record lows right now. The market is still very tight when it comes to underwriting. Especially because the government is backing the vast majority of these loans and they have much stricter rules.

Brian: By the way I can’t get over the amount of building here in Washington.

Diana: Incredible. Cranes everywhere.

Brian: Are they out of cranes? I wish I was a crane seller.

Mark: It’s amazing.

Diana: It really is a hot market.

Brian: Diana and Mark, we appreciate your insight on a hot topic, because everyone is moaning and groaning that they can’t find a place to live for what they can afford.