Tuesday, October 30, 2007
Monday, October 29, 2007
All my best,
By Barry Habib contributing editor to CNBC.com
So the Federal Reserve cut rates again. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during recent 5 Fed rate cuts. In fact mortgage rates are now higher than they were before the Fed began cutting rates by in January. This is difficult to explain to many consumers who have watched a 2.5% reduction by the Fed with no benefit in mortgage rates.
Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.
Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.
Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.
So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.
We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past several years, one catalyst that seems to be working in the opposite direction of MBS prices is the Nasdaq and broader stock market.
As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The charts accompanying this article show the Nasdaq Composite Index and the Fannie Mae 6.5% mortgage bond tend to follow paths that are almost mirror images of each other. The consistency of this behavior is astounding.
As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.
The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it's how the Nasdaq and broader stock market interprets the Fed's action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.
On the chart of the Nasdaq Composite Index above, notice how the price movement higher on the Nasdaq seems to correlate to mortgage bond price deterioration (shown below) and vice versa. Once again, lower bond prices translate to higher mortgage rates and higher mortgage bond prices mean lower mortgage rates.
The chart below shows how the Fannie Mae 6.5% mortgage bond has performed during the same time period. The green circles indicate Fed rate cuts and the area circled in red shows when the Fed hiked rates.
A closer look at the 5 rate cuts by the Fed this year (see chart below) shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.
Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last.
Here are six common issues that trouble buyers and some factors to weigh:
1. Water damage. Evidence of water damage frightens buyers, but all water damage isn’t serious. Minor leaks generally cost no more than a few hundred to repair. Get an estimate.
2. Missing permits. Ask the home inspector if the work was done well and meets code requirements, even though a permit wasn’t issued.
3. Code violations. How expensive is the repair? Ungrounded electrical outlets are common in old houses and easily fixed.
4. Cracks in the garage floor. Ask the inspector whether these cracks suggest other related problems. Generally these don’t affect the structure of a home.
5. Termites. Termites and termite damage are very common in many parts of the country. It’s important to get rid of them and to get a clear sense of how bad the damage is.
6. Foundation cracks and other foundation issues. Older homes often have cracks in the foundation. Get an expert to inspect the problem and estimate — what if anything — needs to be done.
Source: The Mercury News, Margaret Steen (10/19/07)
Friday, October 26, 2007
The WORLD IS COMING TO AN END
I don’t know about you, but I’m sick & tired of people who see nothing but DOOM and GLOOM all around us. I remember when interest rates were 20%. Property values falling? In the 1950’s, $10,000 bought a nice ranch style house with a barn and a few acres. Today a $10,000 home would be someone sleeping in a used car. Is real estate a great long term investment or what?
The foreclosure rate in many areas of the country (like Oregon) is low. In other areas where declining home values are coupled with a higher percentage of adjustable rate mortgages, the foreclosure picture is bad.
Our local market is solid. Values continue to rise at around 6.5% a year. There certainly is a segment of buyers that could have qualified for a sub-prime loan a year ago, but can’t buy a home today. If you have poor credit history and too much debt, you probably won’t be buying a house until you fix that. Contact a good loan officer for advice. If you could only qualify for a sub-prime adjustable rate mortgage 3 years ago, and have since followed your loan officers’ advice and reduced your debt and cleaned up your credit, you’re ready to re-fi out into a great fixed-rate loan. If you still have crummy credit and too much debt, you’ve got a problem. Sorry. (Really).
Today, with good credit and a steady job, you can get a 30-year fixed rate mortgage at a great interest rate, even with 100% financing. It wasn’t too many years ago that it took that kind of good buyer to be able to purchase a home. Period. Welcome to the past. With a segment of the banking industry imploding, the rest of it did a knee jerk reaction. Banks closed or withdrew programs daily. A year ago there were programs for buyers that had no money, bad credit, and were 1 day out of bankruptcy. That stuff is gone, maybe forever. That’s not a bad thing. Reasonable, less risky programs are starting to come back. I get 2 or 3 e-mails a week announcing the return of specific programs. I got a call yesterday from a well known wholesale bank. The Rep introduced himself as the regional manager of their new SUB PRIME division. I’ll be danged. So is there a crisis in the mortgage banking industry? Sure. Does it affect you directly? For 90% of you looking for a home, probably not. In fact, it is the reason rates are so good right now. It’s called a silver lining.
Here’s how the mortgage system works (simplified): Banks loan out money and take back mortgages. If they kept it up, the vaults would be full of mortgages, and they would be out of money. So banks package up and sell mortgages on the “secondary mortgage market”. That secondary market is in a real slump. Foreclosures have left too many investors holding the bag on those mortgages they had invested in, so they have shied away from mortgage backed securities with their investment money. That’s left the banking industry short on cash for new mortgages.
However, most borrowers who buy houses are not credit risks likely to be foreclosed on. But there is such bad press (daily) on the Doom and Gloom of the housing/mortgage industry, that it further erodes investor confidence in that secondary mortgage market. It does the same to you, our customers. The good things that are going on do not sell newspapers, or help sagging media ratings. So this constant negativity becomes a self – fulfilling prophecy. Daily reports of Doom and Gloom help create the very lack of confidence which leads to more Doom and Gloom. I actually see professionals use this fear as a marketing tool to scare customers into calling. That disturbs me. A lot. It does not help our industry or our market and actually adds to the problem. The glass is either half full or half empty, depending on one’s personal perspective. You don’t have to be naïve to see that it is half full.
I joined the real estate industry in this area in 1994. For years there averaged 2700 or so listings of all types in our MLS, with an average market time of around 75 days on market. Those years were GOOD market conditions. Hmmm. That’s about what it is today. Welcome to the past. Did I already say that?
Terry Johnson, OMT Mortgage Terry@OMTmortgage.com 541-242-8083
Sunday, October 21, 2007
The purpose of this communication is not to alarm you but to alert you to drastic and irreversible changes currently taking place in the mortgage market. If you or anyone else you know will need mortgage financing in the next 18 months, you need to read this!
Just last week, American Home Mortgage and its wholesale counterpart, American Brokers Conduit, became the latest casualties of the credit crisis. Last year, this company closed over $58 billion in home loans. Despite being, by all accounts, a well-run business, market conditions forced them to file for bankruptcy, leaving billions of dollars in loans in their pipeline unable to close. Tens of thousands of borrowers have now been left without financing as a result of companies like this going under.
Clearly, with over 100 national lenders having now closed shop in the last eight months, this is no longer simply a subprime lending issue. The credit market is experiencing unprecedented turmoil. According to Federal Reserve Chairman, Ben Bernanke, "Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing."
What does this mean to consumers?
Potential borrowers cannot wait any longer. For those who are considering buying a home, be aware that the volatile credit market can change overnight, leaving fewer options available to borrowers attempting to qualify for a mortgage. This is even more true for those looking to refinance. With decreases in home values and fewer available mortgage instruments, delaying any longer could get significantly more expensive.
Borrowers with applications in process must not delay. Applicants should work with their mortgage professional to complete all paperwork quickly, especially on non-conforming, stated-income, and stated-asset loans. Even minor delays can result in funds being yanked at the closing table!
Sellers can no longer be reluctant to accept offers or reduce prices. Tightening credit and diminishing mortgage products will continue to reduce the pool of qualified buyers. This, along with the increase in national housing inventories, means now is not the time to hold out for the "best" price possible.
Buyers with credit issues or who have difficulty providing required documentation can no longer sit on the fence. If market conditions change, buyers who qualify for a loan today may not qualify a few weeks from now for the same exact loan. Just this week, many lenders have stopped offering No-Doc loans, and some lenders have even pulled back on all forms of stated loans. As market conditions continue to change, a buyer's pre-approval status can disappear even more quickly, delaying or spoiling the deal.
Subprime and Alt-A refi candidates, especially those with ARMs scheduled to reset over the next 12 months, need to act now - even those with a pre-payment penalty. ARMs borrowers struggling with monthly payments now might be shocked to know that monthly payments can double in some cases once an ARM resets.
What does this mean to you?
If you or someone you know has an ongoing real estate transaction, I would be glad to help. Please call me right away. As an educated mortgage professional, I will utilize my experience and resources to help you and your loved ones to navigate through these turbulent times. Don't leave your future in the hands of some random mortgage provider. I'm local, accountable, and you can trust that I'll do everything in my power to help you succeed.
Friday, October 19, 2007
Coffee: According to the National Coffee Association, the average price for a cup of brewed coffee is $1.38. There are roughly 260 weekdays per year, so buying one coffee every weekday morning costs almost $360 per year.
Cigarettes: The Campaign for Tobacco-Free Kids reports that the average price for a pack of cigarettes in the United States is $4.54. Pack-a-day smokers fork out $1,650 a year. Weekend smoker? Buying a pack once a week adds up, too: $236.
Alcohol: Drink prices vary based on the location. But assuming an average of $5 per beer including tip, buying two beers per day adds up to $3,650 per year. Figure twice that for two mixed drinks a day at the local bar. That's not chump change.
Bottled water from convenience stores: A 20-ounce bottle of Aquafina bottled water costs about $1. One bottle of water per day costs $365 per year. It costs the environment plenty, too.
Manicures: The Day Spa Magazine Price Survey of 2004 found that the average cost of a manicure is $20.53. A weekly manicure sets you back about $1,068 per year.
Car washes: The average cost for a basic auto detailing package is $58, according to Costhelper.com. The tab for getting your car detailed every two months: $348 per year.
Weekday lunches out: $9 will generally cover a decent lunch most workdays. If you buy, rather than pack, a lunch five days a week for one year, you shell out about $2,340 a year.
Vending-machines snacks: The average vending machine snack costs $1. Buy a pack of cookies every afternoon at work and pay $260 per year.
Wednesday, October 17, 2007
A desire to own a home of their own and to establish a household is the most often sited reason for purchasing a home, according to preliminary results from NAR’s Profile of Home Buyers and Sellers. Thirty-three percent of all buyers, and a whopping 70 percent of first-time buyers, express this as their prime motivator in the 2007 report, scheduled for release in November. A job-related move, desire for a larger home, a change in family situation, desire for a home in a better area and a desire to be closer to family and friends are also high on the list of reasons for purchasing a home. Interestingly enough, taking advantage of perfect market conditions was not mentioned -- not this year, last year or...well... ever!
Tuesday, October 16, 2007
Friday, October 12, 2007
For buyers, open houses offer an opportunity to see properties in person and get a feel for the market without the pressure of working with a real estate agent. For sellers, just the act of scheduling the first open house can jump-start an effort to get a property market-ready by ridding the house of clutter and attending to small repairs.
The Internet, and the opportunity it gives buyers to get detailed information about properties through virtual tours, and even detailed floor plans online, may make the open house less relevant.
Some contend that “real buyers” call and make appointments to see properties, and open houses usually attract only the curious and unserious.
With a home purchase being one of the most important investments in a person’s lifetime most people still want to get out there and kick the tires. They may do preliminary research on the internet but may want to interview possible Buyer/Seller’s agents, as well as physically walk through some properties and get the lay of the land. An open house gives the serious Buyer the opportunity to do all of the above.
Also affected is the use of FHA and Oregon Bond with Cash Advatage. You may no longer use the Cash Advantage for down payment on FHA Oregon Bond loans only (conventional Bond still OK). HUD recently issued a ruling that prohibits use of such programs as AmeriDream, Nehemiah, etc. and included reference to other cash assistance that is from an “interested” third party or other entity. This regulation will be effective October 31, 2007 and will not affect any loans in the pipeline scheduled to close before that date.
Tuesday, October 2, 2007
The third house will be the biggest bargain of the bunch located on Rollie Loop. 2:30-4:30pm. You can find out more about it here http://teamwickham.blogspot.com/2007/09/rollie.html
or go to http://www.web2real.com/listings.shtml?propid=7032154&source=sallyjoi&who=sallyjoi&cat=Residential for more information.
Monday, October 1, 2007
In a city where all you see are trees and college students. Eugene has erupted in growth more in the last few years then in the previous twenty. The community has attracted new business and jobs. But like the rest of Oregon the market has slowed. The current median price of a home in Eugene is about $206,000, up more then 50% within the past couple of years. Eugene is hypothesized to finish 2007 with an average of 5.2% in appreciation. According to RMLS of Oregon, Portland is among the top ten appreciating US markets. Oregon was once one of the weakest economic state in the west coast but the economic status has increased drastically due to the new business and new employers. Many of the new residents have been drawn to the lower cost of living, lower priced homes, and high employment rate. But now the price of homes are also changing.
Apartments being purchased by condominium-converters are taking units offline
Increased immigration and job growth
Cost of construction for new units has increased, limiting the growth of new apartment construction to about 2000 units for 2007
Land seems to be available but at a high cost exceeding the $15,000 to $20,000 per unit that apartment developers might consider
On a lighter note we see that the popularity of outdoor living spaces sky-rocket. '"Outdoor living is no longer a noun. It's a verb," says Susan McCoy, president of the Garden Media Group.' Entertaining people outside is always a plus, If you have the lawn to do it in. If you are in the market for a spacious entertaining area you should check out http://teamwickham.blogspot.com/2007/09/richardson.html!
Now we move on to the more pressing matters. 10 Ways To Buy Better In A Down Market.
It basically gives you a run down on what to do to improve your odds. For example you shouldn't buy the first bargain you see, tip number seven, or how about "be aware that no one knows what the future will bring. As they say on Wall Street, past performance does not guarantee future results." tip number ten. You should really take a look at this if you plan to buy a house soon.