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Reasons Why A Three Percent Home Down Payment Is A Recipe For Disaster

The housing market resembles an elephant doing a handstand. It is a highly unnatural position and when it topples over, it’s going to make a thundering crash and destroy whatever is underneath.
May 28 opened with news that the S&P/Case-Shiller index, which supposedly measures price gyrations of the nation’s single family home market, smartly advanced 11 percent in March from the same period a year ago and completed a three month hat trick of escalating prices. Lemmings initially rushed to push stock markets into record territory as if this number was a Grail, an ultimate reflector of our nation’s economic health. A peek behind the curtain reveals a shaky edifice with mortar made of bubblegum. Since then the stock market has been on shaky ground, retreating over 3 percent, as recurrent confabulations now express alarm that Dr. Ben over at the Fed will stop writing low interest rate inducing QE III steroid prescriptions sooner rather than later. It may not matter much; the patient is already showing signs of resistance that the efficacy of all the drugs is showing fewer and fewer salutary benefits.
The ten year Treasury note, the primary indicator of mortgage rates, has risen nearly 60 basis points over the past six months and mortgage rates have followed. Steroids or not, the much heralded housing boom is suddenly in danger. Mortgage applications for week ended May 31 were down 11.5 percent and 30 year fixed mortgage rates soared 17 basis points to 4.07 percent the highest in over a year.

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