Long-term rates are behaving very well, despite all the inflation and dollar grumbling in the background (that talk has been wrong and is still wrong). Low-fee mortgage rates are very close to crossing into the high fours.

In an unexplained oddity, the retail mortgage spread to the 3.45 percent 10-year Treasury note is the tightest since The Crunch began in 2007. Theoretically, as the Fed reduces its purchases of mortgage-backed securities, mortgage rates should begin to float away from the 10-year.

Long-term rates are behaving very well, despite all the inflation and dollar grumbling in the background (that talk has been wrong and is still wrong). Low-fee mortgage rates are very close to crossing into the high fours.

In an unexplained oddity, the retail mortgage spread to the 3.45 percent 10-year Treasury note is the tightest since The Crunch began in 2007. Theoretically, as the Fed reduces its purchases of mortgage-backed securities, mortgage rates should begin to float away from the 10-year.

Two explanations: Purchase mortgage demand has crashed 28 percent since early October, hence less supply coming to market; and second, economic data is settling into an "L," at last beginning to convince investors that the Fed is a long, long way from a rate hike.

In this cycle I’ve become suspicious of almost all analysis from investment houses either trying too hard to sell recovery or trying to frighten clients into protective action — and from traditional economists trying to force this unique event into a historical pattern.

This week we got five new reports, all survey-based, all from disinterested parties — a good, solid, real-time snapshot of the recovery, housing, and the true state of credit.

On the second Tuesday of each month comes the small-business survey by the National Federation of Independent Business (the "SBET," at www.nfib.com). In early November it found an "L"-shape had developed across sales, earnings, compensation, inventories and credit, with values still as low or lower than any since the survey began in 1974.

Housing data from mortgage insurers PMI and MGIC is especially useful: They have no tilt, neither to optimism nor pessimism, and are most concerned about prices (steady or rising prices, and mortgage-insurance companies thrive; if prices fall, too many claims on defaulted loans and the companies suffer). Their big reports are quarterly, often with useful monthly updates.

MGIC’s newest Housing Market Summary (click on "Guides," then "Market Trends," at www.mgic.com) boils down the nation into 73 metropolitan statistical areas: 41 are rated either soft or weak, none strong, and the remaining 32 as "stable" (these adjectives all refer to price trend). However, of the 32 stable ones, 19 are described as "softening," and not one of the 73 is improving. …CONTINUED

PMI’s brand-new third-quarter Economic and Real Estate Trends report (at www.pmi-us.com) shows a sharp increase in price risk: of its 49 signal MSAs, 20 project a 90 percent or better chance of lower prices in the next two years, five with a 75 percent or greater probability, and only 11 rating less than a 33 percent chance of price decline.

PMI also rates homes in each MSA for affordability, based on local incomes vs. prices and interest rates, and found the greatest affordability in its history. If so, why the huge excess of sellers over buyers? The unemployed do not buy.

Another segment is too demoralized to buy no matter how low prices go. However, I believe the largest cause of no-buy is mortgage credit, vastly too tight.

The Fed released two reports on credit: the monthly G-19 on consumer credit (at www.federalreserve.gov), and the quarterly Senior Loan Officers’ Survey (click "Economic Research" on the top toolbar, then "Surveys and Reports," then skip past the stale icon from 1998 to the new one just below).

Consumer credit in October contracted for a record eighth straight month, the percentage decline deepening to a 7.2 percent annual negative rate. The Fed’s records going back to 1943 show nothing like this experience.

The Senior Officers’ survey is one of the Fed’s most predictive. The onset of widespread tightening in credit standards always coincides with recession, and the retreat from tightening signals recovery. However, the current reports are badly distorted.

Although the fraction of banks tightening has fallen from loan-category peaks over 70 percent last winter to 15 percent in some, not one single bank reports easing credit "considerably" in any category, and zero to 5 percent per category eased "somewhat."

Thus, a relentless ratcheting of credit standards is unrelieved, finally so tight that few bother to apply, yet the Fed’s survey endlessly and cluelessly recites "low demand for credit." Somebody in authority needs to connect these dots, and right quick.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

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