Monday, June 22, 2009

Loans are driving market conditions

In the LA times...

A tale of two markets divided by the conforming-loan limit
Mortgage rates are low and sales are booming for cheaper homes. But sales are at a virtual standstill for pricier homes because buyers can't get jumbo loans at acceptable rates...

So this affects pricier homes most as only smaller loans can be easily resold on the secondary market. Fewer big loans are being made. Fewer bigger homes are selling. Ouch.

Last Friday (6/19/09 B3) in the LA times "Home Sales, Prices rise in the Bay Area" and conflicting (pg B4) "Mortgage Rates move Lower" and (pg B5) "Bond Yields Rise, Dashing Hope for Lower Rates on Home Loans". So what is the next market situation? If it is priced right it will sell. I am helping a client find a good condo and the market is tightening up. The CMA I just ran shows this to be true.

What is important is... If you find a house/condo you want to live in, then Buy It if you can.

Rates may not be this low in a long, Long Time.



Monday, June 15, 2009

Loan Rates - Movement Up!

"DON'T TOUCH THAT DIAL." That familiar broadcasting statement certainly applied to the markets last week, as the volatility continued and the markets changed direction quickly.

Take a look at the chart below, which shows how home loan rates have climbed dramatically over the last several weeks. In fact, home loan rates are at their highest levels since the Federal Reserve announced their Mortgage Backed Security purchase plan at the end of 2008. While the chart below is just a rough indicator of present rates that require points and fees to be paid, it's clear to see the dramatic climb rates have taken in recent days.

Added supply has been one of the main culprits behind the recent sell-off in Bonds and corresponding climb in home loan rates. So where is that supply coming from? First, all those refinances you've heard about lately are actually turned into Mortgage Backed Securities after they're closed, which adds more Bonds to the market. Plus, government spending plans have to be paid for record levels of Treasury Securities are being auctioned off these days. Although the Fed has a program to purchase some of these Mortgage Bonds, the number of new Bonds simply outweighs what the Fed is able to buy - therefore driving Bond prices lower and home loan rates higher.

There was some good news for the economy as Consumer Sentiment came in at its highest level in 9 months, and Retail Sales were inline with estimates, marking the biggest rebound for Retail Sales in 4 months. There was mixed news on the Jobs front: While Initial Jobless Claims were below estimates, continuing claims rose to 6.82 million, which is another new record. And US exports fell to the lowest level in almost 3 years, as the US Balance of Trade widened in April for the second month. However, US exports should improve a bit in the coming days, as the US Dollar recently sank against foreign currencies, which makes US goods cheaper and more attractive to buy. The flip side of that coin however, is that since oil is Dollar denominated, the price per barrel rises to compensate for the erosion in the Dollar.meaning higher prices at the pump and elsewhere.

Bonds and home loan rates were able to muster up some improvement on Thursday and Friday, helped in part by news that the Paulson & Co. hedge fund is purchasing distressed debt and Mortgage Backed Securities, which will help alleviate some of the supply mentioned above. However, home loan rates still ended the week .25% to .375% worse than where they began.

Since Bond prices react negatively to any news of economic recovery, it's an important sign of the coming change.

Are you looking for the bottom? Do you want to buy now before the sellers smell the change in the wind?

Work with a knowledgeable advisor who monitors the real estate markets every move.

Let me know if you have any questions about the properties on the market today.

Sincerely Keith Lambert

Thursday, June 04, 2009

Swift on Economics

I love the big picture. This part of an econ blog gets you a good perspective.

From "The Financial Crisis - Part 2: The Rest of the Story" on ...

“The American dream is to own a home.”

This paradigm dates back to the New Deal. Before the New Deal, owning a home was not as important as it is today, because housing prices were relatively stable and even declined over the years. However, during the Great Depression, political radicalism became common place. In 1928, the Communist and Socialist parties garnered a combined 300,000 votes. In 1932, they received almost a million. (1) In an effort to stabilize the mortgage industry, and hedge off political radicalism, FDR and his brain trust decided to push for home ownership in the United States. They believed a property-owning citizenry would have a greater stake in the Republic and be less prone to revolutionary ideas. This culminated in the creation of Fannie Mae (and later Freddie Mac and Ginnie Mae). Fannie Mae works by buying mortgages directly from banks, thus freeing up capital for banks to make more home loans, thus creating more homeowners and fewer renters. And as a result, as economic historian Niall Ferguson puts it, the “property-owning democracy” was born.

However, as nice as owning your home sounds, it is a poor, long term investment financially speaking, unless one has other assets with which to compliment it. In general, buying real estate to use as rental properties is a good investment. On the other hand though, piling a large percentage of one’s income into a home that provides no return outside of appreciation, puts all of one’s proverbial eggs in one proverbial basket. If the local housing market depreciates, a major portion of one’s wealth is affected. ...More

So this is why folks who like Safety (me and many others) advice clients to invest in income property. We look to Cash Flow and Earnings. The Stock market is no longer about the Cash Flow or Earnings that are given to the owner of the stock. (They used to not that long ago - Pre-1980)

So Diversify into Income Producing Real Estate. One should not rely on your 401K in the stock market and your home equity to take care of you in the long run. That is two of the three or four legs needed to hold you up comfortably with real secure wealth. Think of a stool you want to rest on. If you want it really secure the fourth leg would be an insurance policy with a sizable annuity. Not Social Security.

Keith L.

Monday, June 01, 2009

Bonds Fall, Loan Rates Climb

"I'M FREE...FREE FALLIN'" Tom Petty.
And a free fall indeed was the case last Wednesday, as Bonds had their worst one-day performance since last October, losing an astounding 206bp. So what caused this free fall...and what helped Bonds and home loan rates rally back and improve later in the week? Here's what you need to know.

The main culprit for Wednesday's sell off was supply. The Treasury auctions and the increased number of refinance transactions closing have added hundreds of Billions of dollars of new Bond supply to the market. Economics 101 tells us that anytime supply vastly exceeds demand, prices will move lower, and that's exactly what we saw last week...and as Bond prices move lower, home loan rates move higher. And the trend isn't likely to end anytime soon, as the Treasury will have to continue to pump out major supply of Bonds, in order to pay for the massive government stimulus plans...and the Fed buying plan simply won't be enough to balance out supply and demand - it's like trying to sop up a flood with a sponge. Bottom line - rates are likely to rise, but are still near historic lows.

Yet the news wasn't all doom and gloom - as both the Dow and S&P 500 have seen three months of positive gains for the first time in over a year! And the National Association for Business Economics (NABE) said that the end of the recession is in sight, noting that, "While the overall tone remains soft, there are emerging signs that the economy is stabilizing." The Commerce Department's report that Gross Domestic Product for the first quarter fell at an annual rate of 5.7% was better than initial estimates, indicating the recession may be slowing down. Important reminder: An improvement in the economy will likely push rates higher over time, which is why it's important to take action during this opportunity of low rates.

In other news, Initial Jobless Claims were better than expectations, but a higher revision to the prior week's reading offset the slightly positive headline number. Durable Goods Orders in April also came in a bit better than expectations. On the housing front, while New Home Sales were just under estimates, Existing Home Sales came in higher than expectations. These reports didn't impact the markets a great deal last week, as the impact from all the extra supply was the real mover and shaker.

Bonds were able to regain some ground Thursday and Friday after their steep free fall on Wednesday, but even with the improvement, home loan rates ended the week .25% to .375% worse than where they began.

So when are we at the best time to buy again. Just before the loan rates get stiff? Not after they go up significantly! Where is that point for you?